-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuH1314G9pNWe8ANWn24BZagunDte4lu4311Ron3IinemTfVr1WMx1m8fnRxgjBs DBNgQ5gP8ZdGS+2nuN4g1A== 0000950144-98-014187.txt : 19981229 0000950144-98-014187.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950144-98-014187 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981228 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-27480 FILM NUMBER: 98775979 BUSINESS ADDRESS: STREET 1: 2900 ATLANTIC AVE. CITY: FERNANDINA BEACH STATE: CA ZIP: 32034 BUSINESS PHONE: 4042774438 8-K 1 LAHAINA ACQUISITIONS INC 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: December 28, 1998 LAHAINA ACQUISITIONS, INC. (Exact name of registrant as specified in its charter) Colorado 0-27480 84-1325695 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 102 South Tenth Street, Fernandina Beach, Florida 32034 (Address of Principal Executive Offices) (904) 277-4438 (Registrant's telephone number, including area code) 5459 S. Iris Street, Littleton, Colorado 80123 (Former name or former address, if changed since last report) ================================================================================ 2 ITEM 1. CHANGES IN CONTROL OF REGISTRANT. The Annual Report on Form 10-K filed by Lahaina Acquisitions, Inc. ("Lahaina" or the "Company") on December 28, 1998 for the fiscal year ended September 30, 1998, Part I, Item 1 "Business, History, Organization and Change of Control" sets forth the history, organization and previous changes of control at the Company. CHANGE IN CONTROL On December 14, 1998, the Company purchased all of the outstanding stock of Beachside Commons I, Inc. from Mongoose Investments, LLC. The Company deemed the purchase effective as of December 7, 1998. Beachside is the owner of a commercial real estate development located on Fernandina Beach, Florida in the resort area of Amelia Island, Northeast Florida. The Company paid for the Beachside Stock: - 1,250,000 shares of the Common Stock of the Company; - 1,910,000 shares of Series A Preferred Stock of the Company which is convertible into 1,910,000 shares of Common Stock and; - $667,500 in cash which was a portion of $750,000 borrowed by the Company under a Convertible Note. The Series A Preferred Stock has a liquidating preference of $1.00 per share and, if declared by the Board of Directors, receives dividends annually at $0.095 per share. The Common Stock and the Series A Preferred Stock held by Mongoose are not registered under the Securities Act. At the same time, Mongoose purchased 750,000 shares of Common Stock from Paxford Investments, Ltd., an existing shareholder, for $300,000. The source of the $300,000 was a portion of the $667,500 cash paid by the Company to Mongoose for the Beachside Stock. See: Item 2, Acquisition or Disposition of Assets, which describes this transaction in more detail. The Stock Purchase Agreement related to the Common Stock and Series A Preferred Stock, the Series A Preferred Stock Terms and the Convertible Note and the related Securities Purchase Agreement, Registration Rights Agreement, Stock Pledge Agreement and Warrant are attached as Exhibits to this Form 8-K. As a result of the above transactions, a change in the control of the Company has occurred in that Mongoose owns 2,000,000 shares of the 2,246,500 shares of Common Stock currently outstanding, or approximately 89% of such shares. Mongoose could own additional 1,910,000 shares of Common Stock upon conversion of the Series A Preferred Stock. The conversion of the $750,000 Convertible Note and the exercise of a related Warrant for 60,000 shares is estimated to result in an additional 600,000 - 800,000 shares of Common Stock being issued. -2- 3 Thus, after conversion of all convertible securities, it is likely that the Company will remain in the control of Mongoose for the foreseeable future. The Managing Member of Mongoose is Richard P. Smyth. EFFECTS OF CHANGE IN CONTROL CHANGE IN BOARD OF DIRECTORS The previous directors of the Company resigned, but, before resigning, elected Richard P. Smyth, Gerald F. Sullivan, Sidney E. Brown, and D. Nelson Lester as Directors of the Company. The Directors will be paid $500 per meeting held telephonically and $1,000 per meeting held in person. Further, each Director has been allowed to purchase 10,000 shares of the Company's Common Stock at $.40 per share, the price paid by Mongoose for the Common Stock purchased from Paxford. The Company is interviewing other persons for membership on the Board of Directors. The Company indemnifies the past and present Directors to the maximum extent permitted by Colorado law. CHANGE IN MANAGEMENT The Company has new management. The staff will be small, initially consisting of the Chairman, CEO and Treasurer, Richard Smyth; a property manager, a professional real estate analyst and a receptionist/secretary. Financial services will be provided by outside services pending the hiring of a Chief Financial Officer. Other staff will be added on an as-needed basis, though it is anticipated that the staff will remain small in the near term. CHANGE IN FINANCIAL AND BUSINESS POSITION As a result of the change in control, there has been a change in the financial position of the Company. Prior to December 7, 1998, the Company had no operations and virtually no assets. The Company now has a positive net worth and significant assets, primarily in the form of the commercial real estate holdings of Beachside. BRIDGE FUNDING In order to raise the cash portion of the purchase price for the Beachside Stock and related transaction costs, the Company borrowed $750,000 from GCA Strategic Investment Fund Limited in the form of a $750,000 Convertible Note. See: Item 2, Acquisition or Disposition of Assets for the description of the conversion features of the Convertible Note. The costs associated with the transaction were the payment of $82,500 to affiliates of the Fund and the issuance of a Warrant to purchase 60,000 shares of Common Stock to LKB Financial, LLC. See: Item 2. Acquisition or Disposition of Assets and the Exhibits to this Form 8-K. -3- 4 BALANCE SHEET IMPACT The Company has liabilities of approximately $2,400,000, consisting primarily of a first mortgage ($1,550,000) on the Beachside Property, and the $750,000 Convertible Note. Its assets consist primarily of the Beachside Property, which includes two fully developed ocean view structures and two ocean front sites for future development. Management believes that the total value of the site is approximately $4.5 million, with $2.7 million of the total value assigned to the two fully developed structures. INCOME STATEMENT IMPACT The Company derives revenues from the rental income associated with the two fully developed structures at the Beachside Property. The current rent collections from the structures is approximately $22,000 per month, before expenses and debt service with respect to the first mortgage. The Company is evaluating the proposals for a mortgage with lower interest rates and a longer term. The Company expects this site to generate sufficient revenues to offset this site's operating expenses and generate a profit on an ongoing basis, but it does not expect that this site alone will generate sufficient cash flow or profits to offset the expense of the ongoing operations of the Company or other operations such as future developments at this and other sites, or other acquisitions, or provide funding for the payment of dividends or interest as required by other obligations of the Company. Accordingly, the Company expects to report operating losses for the near term until it increases the size and the nature of its operations. Future income is expected in the form of a) rental income from Company owned properties, b) income related to the sale or resale of properties which the Company expects to acquire, develop or redevelop, and c) income from other operations which the Company may develop or acquire, including businesses which may not be directly related to the resort real estate business. FUTURE FUNDING PLANS The Company expects to pursue a strategy of continued investment in other real estate related projects through a newly formed subsidiary, Resort Strategies, Inc. Further, the Company intends to continue to evaluate other acquisitions, both in the area of real estate and in other business areas, as a method of increasing its size of operation and value. The Company anticipates the need for further funding as it grows its operations, in order to purchase additional real estate properties or operating companies and to make the payments which may be required as a result of other funding activities, including fees, interest or dividends. It expects to accomplish such funding through a combination of debt and equity, from both private and public sources. -4- 5 As a result of these activities, the Company expects that additional shares of Common Stock and preferred stock in the Company will be issued at future dates, and that these activities will likely have a dilutive effect on the Company and its shareholders. Management believes that debt funding from conventional sources such as banks and real estate lending sources, combined with the issuance of preferred convertible equities, or the use of Common Stock as a form of payment, will be sufficient to fund its operations during this growth period. Success in the implementation of the current business plan is contingent of the availability of such funding sources. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. As described in Item 1, on December 14, 1998, the Company purchased all the Beachside stock from Mongoose. The Company paid Mongoose: 1,250,000 shares of Common Stock, 1,910,000 shares of Series A Preferred Stock (convertible into 1,910,000 shares of Common Stock) and $667,500 cash. A copy of the Stock Purchase Agreement between the Company and Mongoose is filed as an Exhibit to this Form 8-K. The assets of Beachside consist of two buildings and unimproved real estate, leases to tenants in the buildings and minimal operating capital. The property is subject to (1) a first mortgage securing a loan in the amount of $1,550,000 bearing interest at 15% per annum, principal and interest due and payable on December 1, 2001 and (2) a second mortgage in favor of GCA Strategic Investments Fund securing repayment of the $750,000 Convertible Note. The Managing Member of Mongoose is Richard P. Smyth who is now the Chairman, CEO and Treasurer of the Company. See: Item 1: Changes of Control. Prior to the change of control, there was no relationship between the Company and Mongoose or Smyth. The Company intends to continue operating the developed portion of the Beachside property and intends to initiate and complete the development of the currently undeveloped portion of the Beachside property when appropriate financing can be obtained. The Beachside property is estimated to have a value of approximately $4.5 million. This value is supported by an appraisal on the improved portion of the property, and an estimated value for the unimproved property. The Company has engaged an appraiser to appraise the unimproved portion of the property. If this valuation is materially less than the estimated value, the number of shares of Series A Preferred Stock owned by Mongoose will be reduced on a dollar for dollar basis. In order to fund the cash portion of purchase, the Company borrowed $750,000 from GCA Strategic Investment Fund Limited evidenced by a Convertible Note. As previously indicated, a copy of the Convertible Note and the related Securities Purchase Agreement, Registration Rights Agreement, Warrant and Stock Pledge Agreement are filed as Exhibits to this -5- 6 Form 8-K. The Convertible Note bears interest of 9% per annum and matures on January 31, 2001, if not sooner converted or redeemed. Interest is payable quarterly in cash or, at the option of the Company, in Common Stock on the last days of March, June, September and December, on January 31, 2001, or on a Conversion Date (as defined in the Convertible Note), which is the date on which all or a portion of the Convertible Note is converted into Common Stock. Interest payable on a Conversion Date is paid in shares of Common Stock. Up to 50% of the outstanding principal amount of the Convertible Note is convertible at price per share of Common Stock ("Conversion Price") of the lesser of $0.875 (the quoted price on December 7, 1998) or based on a formula ("Formula Price") F/P, where F = the principal amount of the Convertible Note being converted plus accrued and unpaid interest thereon through the date of conversion plus Default Interest, if any, on such interest, and P = the product of 85% multiplied by the average of the five consecutive DWASP for the Common Stock for the five Trading Days ending on the day prior to the Conversion Date (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events as contemplated by Article XI of the Securities Purchase Agreement). The term "DWASP" means, for any security as of any date, the daily-weighted average sales price on the Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the principal trading market for such security, the daily-weighted average sales price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the daily-weighted average sales price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no daily-weighted average sales price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the DWASP cannot be calculated for such security on such date on any of the foregoing bases, the DWASP or such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority in interest of Convertible Notes being converted for which the calculation of the closing bid price is required in order to determine the Conversion Price of such Convertible Notes. At a Conversion Price of $0.875 and if $375,000 of the Convertible Note were converted, approximately 429,000 shares of Common Stock would be issued to the holder of the Convertible Note. At the option of the Company, the balance of $375,000 on the Convertible Note could be redeemed for cash by the Company paying a fee equal to 117% of the outstanding principal amount plus accrued interest or permitting conversion of the balance of the Convertible Note at the Formula Price. -6- 7 If the price of the Common Stock declines prior to a Conversion Date, the holder of the Convertible Note will be entitled to a greater number of shares; if the price of the Common Stock increases prior to a Conversion Date, the Conversion Price will be not greater than 85% of the first day DWASP. ITEM 5. OTHER EVENTS CHANGE IN COMPANY HEADQUARTERS LOCATION As of the date of this filing the Company has relocated its Corporate Offices to 102 South Tenth Street, Fernandina Beach, Florida 32034. Its phone number is (904)277-4438. INTENTION TO FILE FORM S-1 In conjunction with the issuance of the Convertible Note and the Warrant, the Company intends to file a registration statement on Form S-1 with the Securities and Exchange Commission within the next 30 days. The Form S-1 will further detail the Company's business strategy and is expected to cover the registration of 1,000,000 shares of the Common Stock, to cover conversion of the Convertible Note and the exercise of the Warrant. The number of shares was determined based on both the current requirements for registration contained in the Convertible Note and Warrant. Item 7. Financial Statements and Exhibits (a) Pro Forma Financial Information The following sets forth, as of December 14, 1998, the only persons known to the Company to be the beneficial owners of more than 5% of the outstanding shares of Common Stock and Series D Preferred Stock. - -------------------------------------------------------------------------------- NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS(2) BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) - -------------------------------------------------------------------------------- Mongoose Investments, LLC Common Series A Common Series A 7276 Sanctuary Lane Preferred Preferred Fernandina, FL 32034 ------------------------------------------------- 2,000,000 1,910,000 82.9% 100% - -------------------------------------------------------------------------------- GCA Strategic Investment 500,000 -0- 10.6% -0- Fund Limited Mechanics Building 12 Church Street Hamilton HM 11 Bermuda - -------------------------------------------------------------------------------- (1) For the purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or to direct the voting of the security or the power to dispose or to direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within 60 days of December 15, 1998. (2) Assumes (a) GCA Strategic Investment Fund Limited Convertible Note converts to 500,000 shares of Common Stock (b) a Warrant converts to 60,000 shares of Common Stock, in accordance with Management's current expectations and (c) the Series A Preferred Stock converts to 1,910,000 shares of Common Stock. The following table set forth, as of December 14, 1998, certain information regarding the ownership of the Company's shares of Common Stock and Series A Preferred Stock by the Company's directors and each executive officer and the Company's directors and executive officers as a group. - -------------------------------------------------------------------------------- NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS(2) BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) - -------------------------------------------------------------------------------- Common Series A Common Series A Preferred Preferred - -------------------------------------------------------------------------------- Richard D. Smyth, Director, 2,000,000 1,910,000 82.9% 100% Chairman and CEO - -------------------------------------------------------------------------------- Gerald F. Sullivan, Director -0- --- --- - -------------------------------------------------------------------------------- Sidney E. Brown, Director -0- --- --- - -------------------------------------------------------------------------------- D. Nelson Lester, Director -0- --- --- - -------------------------------------------------------------------------------- All Directors and Officers as 2,000,000 1,910,000 82.9% 100% a group (4 persons) - -------------------------------------------------------------------------------- (1) For the purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or to direct the voting of the security or the power to dispose or to direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within 60 days of December 15, 1998. (2) Assumes (a) GCA Strategic Investment Fund Limited Convertible Note converts to 500,000 shares of Common Stock (b) a Warrant converts to 60,000 shares of Common Stock, in accordance with Management's current expectations and (c) the Series A Preferred Stock converts to 1,910,000 shares of Common Stock. (b) Exhibits (See following page.) -7- 8 EXHIBITS Exhibit Number 2.1 Stock Purchase Agreement by and between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC, dated as of December 3, 1998. 2.2 Series A Preferred Stock Terms 2.3 Securities Purchase Agreement by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited, dated as of December 7, 1998. 2.4 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited in the principal amount of $750,000. 2.5 Registration Rights Agreement by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited, dated as of December 7, 1998. 2.6 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003. 2.7 Stock Pledge Agreement by and between Mongoose Investments, LLC and GCA Strategic Investment Fund Limited, dated as of December 7, 1998 99.1 Form of Press Release dated December __, 1998. -8- 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LAHAINA ACQUISITIONS, INC. Date: December 23, 1998 By /s/ ------------------------------------ Richard P. Smyth, Chairman -9- EX-2.1 2 STOCK PURCHASE AGREEMENT LAHAINA ACQ/MONGOOSE INV 1 EXHIBIT 2.1 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of this 7th day of December, 1998 by and between Lahaina Acquisitions, Inc., a Colorado corporation (the "SELLER"), and Mongoose Investments, LLC, a Georgia limited liability company (the "PURCHASER"). RECITALS: WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to buy from Seller, 1,250,000 shares of the no par value per share common stock ("Common Stock") of the Seller, 1,910,000 shares of the no par value per share Series A Preferred Stock ("Preferred Stock") of the Seller and the Note (as defined below) of Seller, and in consideration therefor, Purchaser shall deliver all the stock of Beachside Commons I, Inc. ("Beachside Stock") owned by Purchaser, and upon the terms and subject to the conditions hereinafter set forth (the "ACQUISITION"). NOW, THEREFORE, in consideration of the mutual promises, agreements and covenants set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Definitions. For purposes of this Agreement and the Schedules attached hereto, the following terms shall have the meaning specified or referred to below unless the context requires otherwise: (a) Acquisition. Has the meaning assigned to such terms in the Recitals. (b) AFFILIATE. With respect to any Person, another Person controlling, controlled by, or under common control with such a designated Person and shall include, by way of illustration and without limiting the generality of the foregoing, any association, partnership, trust, corporation, enterprise or other entity in which such Person is a director, officer, limited partner or general partner or in which such designated Person together with Affiliates of such designated Person own in the aggregate a beneficial interest in assets, profits or losses equal to at least ten percent (10%) thereof. (c) BREACH. A Breach of a representation, warranty, covenant, obligation or other provision of this Agreement will be deemed to have occurred if there is or has been any inaccuracy in or breach of, or any failure to perform or comply with such representation, warranty, covenant, obligation or other provision. (d) CODE. The Internal Revenue Code of 1986, as amended. -1- 2 (e) CONTEMPLATED TRANSACTIONS. Collectively, all of the transactions contemplated by this Agreement. (f) CONTRACT. Any agreement or contract, whether written or oral, that is legally binding, including any commitment to purchase, to which the Company is a party. (g) ENCUMBRANCE. Any mortgage, charge, claim, equitable interest, lien, option, pledge, security interest, right of first refusal or other encumbrance. (h) ERISA. The Employee Retirement Income Security Act of 1974, as amended, or any successor law, and the regulations and rules issued pursuant to that act or to any successor law. (i) ERISA Affiliate. Has the meaning assigned to such term in Section 5. 1 6(a) hereof. (j) FINANCIAL STATEMENTS. Collectively, the Seller's most recent Form 10-K and 10-Q filed with the Securities and Exchange Commission. (k) GAAP. At any particular time, generally accepted accounting principles as in effect in the United States at such time; provided, however, that, if it was permissible to use more than one principle at such time in respect of a particular accounting matter, GAAP shall refer to the principle which was then employed by the Company. (1) IRS. The Internal Revenue Service. (m) LIABILITIES. Collectively, any debt, obligation, or tax of any nature or other liability as determined pursuant to GAAP. (n) LOSS OR LOSSES. Have the meanings assigned to such terms in Section 13(a) hereof. (o) MATERIALITY. The terms "MATERIAL," "IN ALL MATERIAL RESPECTS, "MATERIAL CHANGES" and like or similar phrases shall mean, as the context requires, events or circumstances which do or could give rise to negative economic consequences in an aggregate amount of at least ten thousand dollars ($10,000). (p) NOTE. A demand promissory note of Lahaina dated the date hereof in the face amount of $700,000 payable to Mongoose. (q) PERSON. Any individual, corporation, general or limited partnership, limited liability company, limited liability partnership, joint venture, estate, trust, association, organization, governmental body, or other entity or body. (r) PLANS. Has the meaning assigned to such term in Section 5.16(a) hereof. -2- 3 (s) PROCEEDING. Any action, arbitration, audit, complaint, investigation, petition, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any governmental body or administrator or any arbitrator. (t) PROPERTIES. Has the meaning assigned to such term in Section 7.9 hereof. (u) RECIPIENT. Has the meaning assigned to such term in Section 25 hereof. (v) RELATED PERSON. (i) Any person related by blood, adoption or marriage to any Seller, (ii) any corporation or other entity in which any such person, or any Seller, director or officer has, directly or indirectly, at least a five percent (5%) beneficial interest in the capital stock or other type of equity interest in such corporation or other entity, or (iii) any partnership in which any of the foregoing parties is a general or limited partner. (w) SUBSIDIARY. With respect to any Person, any corporation, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof. (x) TAX RETURN. Any return, report, form or other documents or information filed with or submitted to, or required to be filed with or submitted to, any governmental body in connection with the determination, assessment, collection or payment of any Tax (including all filings with respect to employment-related Taxes). (y) THREATENED. A Proceeding, claim, dispute or other matter will be deemed to have been Threatened with respect to a Person, if such Person has received any demand, statement or other notice with respect to such Proceeding, claim, dispute or other matter. 2. Closing; Purchase and Sale of Common Stock, the Preferred Stock and the Note. (a) At the Closing, (x) Seller, in reliance on the representations, warranties and covenants of Purchaser contained herein and subject to the terms and conditions of this Agreement, shall sell to Purchaser the Common Stock, the Preferred Stock and the Note; and (y) Purchaser, in reliance on the representations, warranties and covenants of Seller contained herein and subject to the terms and conditions of this Agreement, shall purchase the Common Stock, the Preferred Stock and the Note from Seller by delivering the Beachside Stock to Seller. (b) Delivery of the Common Stock, the Preferred Stock and the Note. At the Closing, Seller shall deliver to Purchaser, free and clear of all Encumbrances thereon of every kind, the certificates for the shares of Common Stock, the certificates for shares of Preferred Stock and the Note. -3- 4 (c) Delivery of Beachside Stock. At the Closing, Purchaser shall deliver to Seller, free and clear of all Encumbrances thereon of every kind, the certificates for the shares of Beachside Stock. (d) Closing. The Closing shall take place at the Atlanta offices of Sutherland, Asbill & Brennan LLP, Atlanta, Georgia, on December 7, 1998 (the "Closing Date") at 10:00 A.M., or at such other time and place as shall be mutually agreed upon by Purchaser and Seller. 3. [RESERVED]. 4. [RESERVED]. 5. Representations and Warranties of the Seller. Seller represents and warrants to Purchaser as follows: 5.1 Organization, Standing, Qualification and Capitalization. Seller is a corporation duly organized, validly existing and in good standing under the laws of Colorado, and has all requisite corporate power and authority to conduct its business as presently conducted and to own and lease the properties and assets used in connection therewith. A complete and accurate copy of (i) the Articles of Incorporation of Seller and (ii) the By-Laws of Seller and all amendments thereto, have been delivered to Purchaser. Seller is not required to be qualified to do business as a foreign corporation in any state. 5.2 Capitalization; Ownership of Common Stock and Related Matters. The total authorized capital stock of Seller the Company consists of 800,000,000 shares of Common Stock of which 996,500 shares are issued and outstanding and 10,000,000 shares of Preferred Stock, none of which are outstanding. All outstanding shares were duly authorized and validly issued and are fully paid and non-assessable and the shares of Common Stock and Preferred Stock to be issued and delivered pursuant to this Agreement will be duly authorized, validly issued, fully paid and non-assessable. There are no shares of capital stock of the Seller issued and outstanding except for such shares. None of such shares was issued in violation of any preemptive or preferential right. There are currently no stock options outstanding. Seller is not and, at the Closing, will not be a party to or bound by any written or oral Contract or agreement which grants to any Person an option or right of first refusal or other right of any character to acquire at any time, or upon the happening of any stated events, shares of capital stock or other securities of the Seller whether or not presently issued or outstanding. 5.3 Subsidiaries of Seller. Seller does not own any shares of any corporation nor has any interest in any partnership, limited liability company, joint venture or other legal entity. 5.4 Financial Statements. Seller has delivered to Purchaser true, complete and accurate copies of the Financial Statements. The Financial Statements have been prepared in accordance with GAAP, except as otherwise disclosed therein, applied on a basis consistent with that of the preceding fiscal years. -4- 5 5.5 Properties. Seller has good and marketable title to all its assets, free and clear of all Encumbrances of any nature whatsoever. 5.6 Taxes. (a) Seller has duly and timely filed all Tax Returns which were required to be filed by it, and paid, or has recorded adequate reserves on the Financial Statements for the payment of, all Taxes shown on all Tax Returns. All Tax Returns are true, correct and complete in all material respects. 5.7 Litigation. There is no litigation, Proceeding or governmental investigation pending or Threatened, or judgment against or related to Seller or its properties, assets or business. 5.8 Intellectual Property Rights. (a) Seller has no patents or patent applications, trademarks, service marks, logos, trade names (whether registered or unregistered) or applications for registration and registrations therefor, or internet domain names or 1-800 and 1-888 telephone numbers; or any copyrights (whether registered or unregistered) or applications for registration and registrations therefor. 5.9 Contracts and Commitments. Seller has no Contracts other than this Agreement. 5.10 [Reserved]. 5.11 Absence of Undisclosed Liabilities. There are no material Liabilities or obligations of Seller either accrued, absolute, contingent or otherwise, including, but not limited to, any Liabilities for Taxes due or to become due, except to the extent reflected on the Financial Statements. 5.12 Absence of Default. Seller is not in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any debenture or note, or contained in any conditional sale or equipment trust agreement, or loan or other borrowing agreement to which Seller is a party. 5.13 Existing Condition. Since January 1, 1998, there has not been any material adverse change in the business, operations, prospects, properties, assets, liabilities, or condition, financial or otherwise, of Seller. 5.14 Restrictions. Seller is not subject to any charter or other corporate restriction, any agreement or any judgment, order, writ, injunction or decree, which materially and adversely affects or, so far as Seller can now foresee, may in the future materially and adversely affect, the business, operations, prospects, properties, Assets, Liabilities, or condition, financial or otherwise, of Seller. -5- 6 5.15 Employee Benefits. Seller does not maintain, and have not maintained, any bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit sharing, pension, or retirement plan, program, agreement or arrangement, or other employee benefit plan, program, agreement or arrangement (other than arrangements involving the payment of wages) sponsored, maintained or contributed to or required to be contributed to by Seller or by any trade or business, whether or not incorporated (an "ERISA AFFILIATE") that together with Seller would be deemed a "SINGLE EMPLOYER" within the meaning of Section 4001(a)(14) of ERISA, for the benefit of any current or former employee, director, partner or independent contractor of Seller or any ERISA Affiliate, whether formal or informal and whether legally binding or not (the "PLANS") with respect to which Seller or any ERISA Affiliate has or may in the future have any liability or obligation to contribute or make payments of any kind. 5.16 Bank Accounts and Directors and Officers. Seller has provided Purchaser with a true and complete list of the name and location of each bank or other financial institution in which Seller has an account, each safety deposit box or custody agreement and the names of the Persons authorized to draw thereon or to withdraw therefrom and the names of all directors and officers of Seller. 5.17 Compliance with Laws and Instruments. Seller has complied with and is not in default under, or in violation of, any material laws, ordinances, rules or regulations or orders (including, without limitation, any safety, health, wage, hour, employment and trade laws, ordinances, rules, regulations and orders) applicable to its business which materially and adversely affects or, so far as Seller can foresee, may in the future materially and adversely affect its business or condition, financial or otherwise. 5.18 Environmental Compliance. Seller is not in violation of any environmental laws. 5.19 [Reserved]. 5.20 Validity of Contemplated Transactions. Neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions provided for herein or therein will conflict with, violate, or result in a breach, default or the creation of any Encumbrance pursuant to, any agreement to which Seller is a party or by which it is bound or any law, order, judgment or decree or any provision of the Articles of Incorporation or Bylaws of Seller or any Contract to which Seller is a party. Seller has the full power and legal authority to execute this Agreement and to consummate and perform the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby are within the corporate power of Seller and has been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by -6- 7 Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. 5.21 Disclosure. No representation or warranty by Seller in this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make any statement herein or therein not misleading. 5.22 Corporate Records. The stock records and minute books of Seller finished to Purchaser by Seller fully reflect all issuances, transfers and redemptions of its capital stock, correctly show the total number of shares of its capital stock issued and outstanding on the date hereof, correctly show all corporate action taken by the directors and shareholders of Seller (including action taken by consent without a meeting) and contains true and correct copies or originals of its articles of incorporation and all amendments thereto, its by-laws as amended and currently in force and the minutes of all meetings or consent actions of its directors and shareholders. 6. Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that: 6.1 Organization, Good Standing and Authority. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia, and has all requisite corporate power and authority to conduct its business as presently conducted and to own and lease the properties and assets used in connection therewith. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are within the power of Purchaser and have been duly authorized by all necessary action on the part of Purchaser. This Agreement to which Purchaser is a party constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms. 6.2 Validity of Contemplated Transactions. Neither the execution and delivery of this Agreement by Purchaser nor the consummation by Purchaser of the transactions provided for herein or therein will conflict with, violate, or result in a breach of or default under any Contract to which Purchaser is a party or by which it or its assets are bound or any law, order, judgment or decree or any provision of the charter or operating agreement of Purchaser or any Contract to which Purchaser is a party. 6.3 Litigation. There is no pending action or Proceeding that has been commenced against Purchaser and that may have the effect of preventing, delaying, or making illegal the Contemplated Transactions and, to the best knowledge of Purchaser, no such action or Proceeding has been threatened. 6.4 INVESTMENT REPRESENTATIONS. The Common Stock and Preferred Stock being delivered pursuant to the provisions of this Agreement will be held by Purchaser for its own account and not with a view to, or for resale in connection with, the distribution thereof. 7. [Reserved]. -7- 8 8. Conditions Precedent to Purchaser's Obligations. All obligations of Purchaser under this Agreement are subject to the fulfillment, prior to or at the Closing Date, of each of the following conditions: 8.1 Representations and Warranties. Seller's representations and warranties contained in this Agreement or in any list, certificate or document delivered pursuant to the provisions hereof or in connection with the Contemplated Transactions shall be true and correct at and as of the Closing Date as though such representations and warranties were made at and as of such time (except to the extent that they are stated therein to be true as of some other date). 8.2 Compliance with Agreements and Conditions. Seller shall have performed or complied with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing Date. 8.3 Certificate of Seller. Seller shall have delivered to Purchaser a certificate, executed by Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request to (a) the fulfillment and satisfaction of the conditions specified in Sections 8.1 and 8.2 above, and (b) the absence of any adverse change in the business of the Seller prior to the Closing Date. 8.4 [Reserved]. 8.5 [Reserved]. 8.6 Approval of Counsel. All steps to be taken and all resolutions, papers and documents to be executed, and all other legal matters in connection with the purchase and sale of the Common Stock and Preferred Stock and related matters, shall be subject to the reasonable approval of Purchaser's counsel. 8.7 Certificates. Seller shall have furnished to Purchaser (a) copies of the Articles of Incorporation of Seller, (b) copies of the By-Laws of Seller, and (c) a certificate of the Secretary of Seller relating to the incumbency and corporate proceedings in connection with the consummation of the Contemplated Transactions, and the absence of changes in the Company's Articles of Incorporation and By-Laws. 9. Conditions Precedent to Seller's Obligations. All obligations of Seller under this Agreement are subject to the fulfillment, prior to or at the Closing Date, of each of the following conditions: 9.1 Representations and Warranties. Purchaser's representations and warranties contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof or in connection with the Contemplated Transactions shall be true and correct at and as of the Closing Date as though such representations and warranties were made at and as of such time. -8- 9 9.2 Compliance with Agreements and Conditions. Purchaser shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing Date. 9.3 Certificate of Purchaser. Purchaser shall have delivered to Seller a certificate, dated the Closing Date, certifying in such detail as Seller may reasonably request to the fulfillment and satisfaction of the conditions specified in Sections 9.1 and 9.2 above. 10. Survival of Representations and Warranties. All representations and warranties made by Purchaser and Seller in this Agreement or pursuant hereto shall survive the Closing for a period of one year. 11. [Reserved]. 12. Indemnification. (a) Seller shall indemnify and hold harmless Purchaser and its officers, directors, employees, stockholders, representatives, agents, successors and assigns from and against any claims, actions, judgments, damages, losses, or other Liabilities of whatsoever nature, including fines, penalties, costs and expenses (including, without limitation, settlement costs, any reasonable legal, accounting or other expenses incurred in connection with investigating or defending any actions or Threatened actions and court costs) (a "Loss" or "Losses") sustained or required to be paid by reason of, arising out of or caused by (i) any misrepresentation or Breach of any representation or warranty made by Seller in this Agreement, or any other certificate, instrument or document contemplated hereby, or (ii) any Breach of or failure to perform any covenant, agreement or obligation of Seller or the Company contained in this Agreement, or any other certificate, instrument or document contemplated hereby. (b) Purchaser shall indemnify and hold harmless Seller and its officers, directors, employees, stockholder representatives, agents, successors and assigns from and against any Loss or Losses sustained or required to be paid by reason of, arising out of or caused by (i) any misrepresentation or Breach of any representation or warranty made by Purchaser in this Agreement or any other certificate, instrument or document contemplated hereby; or (ii) of or failure to perform any Breach of any covenant, agreement or obligation of Purchaser contained in this Agreement, or any other certificate, instrument or document contemplated hereby. 13. [RESERVED]. 14. [RESERVED] 15. Expenses. Seller shall bear its expenses incurred in connection with this Agreement and the transactions contemplated hereby and thereby. Seller agrees to pay all stamp and/or transfer taxes that become due and payable as a result of the transactions contemplated by this Agreement. -9- 10 16. Announcements. No announcements of the transactions contemplated hereby shall be made to the general public by any of the parties hereto or their respective officers, directors, employees, advisors, agents or representatives, without the prior written consent of the other party unless, in the written opinion of counsel for the disclosing party, such public announcement is legally required and, in such event, the non-disclosing party shall have been notified of the proposed public announcement and shall have been given a reasonable opportunity to comment on the content thereof. 17. Cooperation; Further Actions and Assurances. Purchaser and Seller will execute and deliver any and all documents, and will cause any and all other action to be taken, either before or after the Closing, which may be necessary or proper to effect or evidence the provisions of this Agreement and the transactions contemplated hereby. 18. Counterparts. This Agreement may be executed in several counterparts each of which is an original. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 19. Governing Law; Venue. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia without regard to its principles of conflict of laws. 20. Section Headings and Gender. The section headings herein have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provisions hereof. The use of the masculine pronoun herein when referring to any party has been for convenience only and shall be deemed to refer to the particular party intended regardless of the actual gender of such party. 21. Schedules and Exhibits. There are no schedules or Exhibits. 22. Notices. All notices, requests and other communications which are required or permitted hereunder shall be sufficient if given in writing and delivered personally or by registered or certified mail, postage prepaid, as follows (or to such other address as shall be set forth in a notice given in the same manner): If to Purchaser to: Mongoose Investments, LLC 7276 Sanctuary Lane Suite 400 Fernandina Beach, FL 32304 -10- 11 If to Seller: Lahaina Acquisitions, Inc. 2900 Atlantic Avenue Suite 1000 Fernandina Beach, FL 32304 23. Modification and Waiver. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof, and this Agreement may be modified or amended at any time by Purchaser or Seller. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall such waiver constitute a continuing waiver. 24. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. 25. Third Party Beneficiaries. Except as otherwise expressly set forth herein, no Person shall be a third-party beneficiary of the representations, warranties, covenants and agreements made by any party hereto. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS.] -11- 12 IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. LAHAINA ACQUISITIONS, INC. By: /s/ GRAHAM M. COOPER ----------------------------------- Name: GRAHAM M. COOPER ----------------------------- Title: PRESIDENT ----------------------------- MONGOOSE INVESTMENTS, LLC By: /s/ RICHARD P. SMYTH ----------------------------------- Name: RICHARD P. SMYTH ----------------------------- Title: MANAGING MEMBER ----------------------------- EX-2.2 3 SERIES A PREFERRED STOCK TERMS 1 EXHIBIT 2.2 12/7/98 SERIES A PREFERRED STOCK TERMS LAHAINA ACQUISITIONS, INC. Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by the Articles of Incorporation of Lahaina Acquisitions, Inc. (the "Corporation") may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of 3,000,000 shares of no par value per share Preferred Stock (the "Series A Preferred Stock") are set forth below. 1. Dividend Provisions. (a) Subject to the rights of any series of Preferred Stock that may from time to time come into existence, the holders of shares of Series A Preferred Stock shall be entitled to receive dividends out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Common Stock of this Corporation, at the rate of $0.095 per share, per annum (as adjusted for any stock splits, stock dividends, recapitalizations or the like), payable when, as, and if declared by the Board of Directors. Such dividends are cumulative. The holders of the outstanding Series A Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1 upon the affirmative vote or written consent of the holders of a majority of the Series A Preferred Stock. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, subject to the rights of series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of $1.00 for each outstanding share of Series A Preferred Stock (the "Series A Liquidation Price"), plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like) (b) Upon completion of the distribution required by subsection (a) of this Section 2, all of the remaining assets of this Corporation available for distribution to stockholders shall be distributed among the holders of Series A Preferred 2 Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all shares of Series A Preferred Stock). (c) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this Corporation shall be deemed to be occasioned by, or to include (unless the holders of a majority of the Series A Preferred Stock then outstanding shall determine otherwise), (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of this Corporation; or (B) a sale of all or substantially all of the assets of this Corporation. (ii) In any of such events, if the consideration received by this Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series A Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of such Series A Preferred Stock. (iii) In the event the requirements of this subsection 2(c) are not complied with, this Corporation shall forthwith either: 2 3 (A) cause such transaction to be postponed until such time as the requirements of this Section 2 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iv) hereof. (iv) This Corporation shall give each holder of record of Common Stock and Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and this Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this Corporation has given the first notice provided herein or sooner than ten (10) days after this Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Common Stock and Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Common Stock and Series A Preferred Stock. 3. Redemption. The Series A Preferred Stock is redeemable only at the election of the Board of Directors of this Corporation upon 20 days notice to the holders of Series A Preferred Stock at a price per share equal to the Series A Liquidation Price plus accrued (whether or not declared) but unpaid dividends on each such share (subject to adjustment as set in Subsection 2(a)). 4. Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"). (a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, and until 5:00 p.m. Eastern Time of the day fixed for redemption as set forth in Section 3, at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Liquidation Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be $1.00, subject to adjustment as set forth in subsection 4(d). 3 4 (b) Automatic Conversion. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock immediately upon the earlier of (i) this Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which was not less than $10.00 per share (as adjusted for any stock splits, stock dividends, recapitalizations or the like) and $10,000,000 in the aggregate or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock. (c) Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A Preferred Stock and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the names or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock for Certain Dilution Issuances, Splits and Combinations. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) If this Corporation shall issue, after the date upon which any shares of Series A Preferred Stock were first issued (the "Purchase Date"), any Additional Stock (as defined below): 4 5 (A) If such Additional Stock is issued without consideration or for a consideration per share less than the Conversion Price for such Series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such Series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance would purchase at such Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such Additional Stock. (B) No adjustment of the Conversion Price for the Series A Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance after the applicable Purchase Date of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii): 5 6 (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options. to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration, determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D), if any, received by this Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this Corporation for any such securities and related options. or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof (unless such options or rights or convertible or exchangeable securities were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no other adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such option's or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed 6 7 using such options, rights or securities or options or rights related to such securities (unless such options or rights were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights relates to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(l) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E) (3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this Corporation after the Purchase Date other than: (A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof, or (B) up to 100,000 shares of Common Stock (excluding shares repurchased at cost by this Corporation in connection with the termination of service) issuable or issued to employees, consultants, directors or vendors (if in transactions with primarily non-financing purposes) of this Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of this Corporation; or, (C) up to 1,000,000 shares of Common Stock issuable upon conversion of this Corporation's convertible debentures and warrants (subject to adjustment for any stock splits, stock dividends, combinations, recapitalization or the like). (iii) In the event this Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend 7 8 distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (iv) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be decreased in proportion to such decrease in outstanding shares. (e) Other Distributions. In the event this Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Series A Preferred Stock, as the case may be, shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this Corporation into which their shares of Series A Preferred Stock, are convertible as of the record date fixed for the determination of the holders of Common Stock of this Corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2), provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, the number of shares of stock or other securities or property of this Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock shall be applicable after that event as nearly equivalent as may be practicable. (g) No Impairment. This Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the 8 9 terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section 4, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such Series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series A Preferred Stock. (i) Notices of Record Date. In the event of any taking by this Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Series A Preferred Stock at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A 9 10 Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Corporation's Articles of Incorporation. (k) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. 5. Voting Rights. (a) General Voting Rights. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock, as the case may be, could then be converted, and with respect to such vote, except as set forth in Section 5(b), such holder (i) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (ii) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and (iii) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis shall be rounded to the nearest whole number (with one-half being rounded upward). (b) Voting for the Election of Directors. The holders of shares of Series A Preferred Stock shall be entitled to elect one (1) director of this Corporation at each annual election of directors. The holders of Series A Preferred Stock and Common Stock (voting together as a single class and not as separate series, and on an as-converted basis) shall be entitled to elect any remaining directors of this Corporation. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or Series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or Series may by affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the 10 11 holders of a class or Series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or Series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or Series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. Subject to the rights of Series of Preferred Stock that may from time to time come into existence, so long as any shares of Series A Preferred Stock are outstanding, this Corporation shall not: (a) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the Series A Preferred Stock then outstanding voting together as a single class: (i) sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is disposed of; (ii) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this Corporation or any subsidiary pursuant to agreements under which this Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (iii) amend this Corporation's Articles of Incorporation or bylaws; (iv) declare or pay any dividends on any shares of capital stock; (v) do any act or thing which would result in taxation of the holders of shares of the Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended); or 11 12 (vi) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series A Preferred Stock with respect to dividends, liquidation or voting. 7. Status of Converted Stock. In the event any shares of Series A Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by this Corporation. The Articles of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in this Corporation's authorized capital stock. 12 EX-2.3 4 SECURITIES PURCHASE AGREEMENT DATED 12/7/98 1 EXHIBIT 2.3 SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER 7, 1998 BY AND BETWEEN LAHAINA ACQUISITIONS, INC. AS THE ISSUER, AND GCA STRATEGIC INVESTMENT FUND LIMITED 2 TABLE OF CONTENTS ARTICLE I. DEFINITIONS...........................................................................................1 SECTION 1.1 DEFINITIONS.................................................................................1 SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS.........................................................9 ARTICLE II. PURCHASE AND SALE OF SECURITIES......................................................................9 SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES......................................................9 SECTION 2.2 PURCHASE PRICE.............................................................................10 SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT...........................................................10 ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES.................................................................10 SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS.......................................10 SECTION 3.2 PAYMENT OF INTEREST........................................................................10 SECTION 3.3 VOLUNTARY PREPAYMENT.......................................................................10 SECTION 3.4 MANDATORY PREPAYMENTS......................................................................11 SECTION 3.5 PREPAYMENT PROCEDURES......................................................................11 SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS..............................................................12 ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................................14 SECTION 4.1 ORGANIZATION AND QUALIFICATION.............................................................14 SECTION 4.2 AUTHORIZATION AND EXECUTION................................................................14 SECTION 4.3 CAPITALIZATION ............................................................................14 SECTION 4.4 GOVERNMENTAL AUTHORIZATION.................................................................15 SECTION 4.5 ISSUANCE OF SHARES.........................................................................15 SECTION 4.6 NO CONFLICTS...............................................................................15 SECTION 4.7 FINANCIAL INFORMATION......................................................................16 SECTION 4.8 LITIGATION.................................................................................16 SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS..............................................16 SECTION 4.10 ENVIRONMENTAL MATTERS.....................................................................17 SECTION 4.11 TAXES.....................................................................................17 SECTION 4.12 INVESTMENTS, JOINT VENTURES...............................................................17 SECTION 4.13 NOT AN INVESTMENT COMPANY.................................................................17 SECTION 4.14 FULL DISCLOSURE...........................................................................17 SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS......................................18 SECTION 4.16 PERMITS...................................................................................18 SECTION 4.17 LEASES....................................................................................18 SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS...................................18 SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY............................................................18 SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS..............................................................19 SECTION 4.21 INSURANCE.................................................................................19 SECTION 4.22 TITLE TO PROPERTIES.......................................................................19 SECTION 4.23 INTERNAL ACCOUNTING CONTROLS..............................................................19 SECTION 4.24 YEAR 2000 COMPLIANCE......................................................................19
ii 3 SECTION 4.25 FOREIGN PRACTICES.........................................................................20 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................20 SECTION 5.1 PURCHASER..................................................................................20 ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................................21 SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE................................21 SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS....................................................24 ARTICLE VII. AFFIRMATIVE COVENANTS..............................................................................24 SECTION 7.1 INFORMATION................................................................................24 SECTION 7.2 PAYMENT OF OBLIGATIONS.....................................................................25 SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE.........................................................25 SECTION 7.4 MAINTENANCE OF EXISTENCE...................................................................25 SECTION 7.5 COMPLIANCE WITH LAWS.......................................................................26 SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS..................................................26 SECTION 7.7 INVESTMENT COMPANY ACT.....................................................................26 SECTION 7.8 USE OF PROCEEDS............................................................................26 SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.................................26 SECTION 7.10 RESERVED SHARES AND LISTINGS..............................................................26 SECTION 7.11 IRREVOCABLE INSTRUCTIONS..................................................................27 SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.................................28 SECTION 7.13 FORM D; BLUE SKY LAWS.....................................................................28 ARTICLE VIII. NEGATIVE COVENANTS................................................................................28 SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES...................................................28 SECTION 8.2 TRANSACTIONS WITH AFFILIATES...............................................................28 SECTION 8.3 MERGER OR CONSOLIDATION....................................................................29 SECTION 8.4 LIMITATION ON ASSET SALES..................................................................29 SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS.........................................................29 SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS............................29 SECTION 8.7 LIMITATION ON STOCK REPURCHASES............................................................30 ARTICLE IX. RESTRICTIVE LEGENDS.................................................................................30 SECTION 9.1 RESTRICTIONS ON TRANSFER...................................................................30 SECTION 9.2 RESTRICTIVE LEGENDS........................................................................31 SECTION 9.3 NOTICE OF PROPOSED TRANSFERS...............................................................31 ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................................31 SECTION 10.1 LIQUIDATED DAMAGES........................................................................31 SECTION 10.2 CONVERSION NOTICE.........................................................................32 SECTION 10.3 CONVERSION LIMIT..........................................................................32 SECTION 10.4 REGISTRATION RIGHTS.......................................................................33 SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES.....................................................34
iii 4 ARTICLE XI. ADJUSTMENT OF FIXED PRICE...........................................................................34 SECTION 11.1 REORGANIZATION............................................................................34 SECTION 11.2 SHARE REORGANIZATION......................................................................34 SECTION 11.3 RIGHTS OFFERING...........................................................................35 SECTION 11.4 SPECIAL DISTRIBUTION......................................................................36 SECTION 11.5 CAPITAL REORGANIZATION....................................................................37 SECTION 11.6 PURCHASE PRICE ADJUSTMENTS................................................................37 SECTION 11.7 ADJUSTMENT RULES..........................................................................38 SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT..............................................................38 SECTION 11.9 NOTICE TO NOTEHOLDERS.....................................................................38 ARTICLE XII. EVENTS OF DEFAULT..................................................................................39 SECTION 12.1 EVENTS OF DEFAULT.........................................................................39 SECTION 12.2 POWERS AND REMEDIES CUMULATIVE............................................................41 ARTICLE XIII. MISCELLANEOUS.....................................................................................41 SECTION 13.1 NOTICES...................................................................................41 SECTION 13.2 NO WAIVERS; AMENDMENTS....................................................................41 SECTION 13.3 INDEMNIFICATION...........................................................................42 SECTION 13.4 EXPENSES: DOCUMENTARY TAXES..............................................................44 SECTION 13.5 PAYMENT...................................................................................44 SECTION 13.6 SUCCESSORS AND ASSIGNS....................................................................44 SECTION 13.7 BROKERS...................................................................................44 SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; APPOINTMENT OF AGENT......................................................................44 SECTION 13.9 ENTIRE AGREEMENT..........................................................................45 SECTION 13.10 SURVIVAL; SEVERABILITY...................................................................45 SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK. .................................................45 SECTION 13.13 PUBLICITY................................................................................45
iv 5 LIST OF SCHEDULES Schedule 4.1 Financings Schedule 4.3 Capitalization Schedule 4.7 Financial Information Schedule 4.8 Litigation Schedule 4.12 Investments, Joint Ventures Schedule 6.1(q) Beachside Property Schedule 8.2 Transactions with Affiliates Schedule 8.3 Merger or Consolidation
v 6 LIST OF EXHIBITS Exhibit A Form of Convertible Notes Exhibit B Form of Registration Rights Agreement Exhibit C Form of Solvency Certificate Exhibit D Form of Officer's Certificate Exhibit E Form of Company Counsel's Opinion Exhibit F Form of Pledge Agreement
vi 7 SECURITIES PURCHASE AGREEMENT AGREEMENT, dated as of December 7, 1998, between Lahaina Acquisitions, Inc. (the "Company") and GCA Strategic Investment Fund Limited ("Purchaser"). R E C I T A L S: WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser desire to purchase from the Company, $750,000 aggregate principal amount of the Company's 9% Convertible Notes due January 31, 2001 (the "Convertible Notes"), with terms and conditions as set forth in the form of Convertible Note attached hereto as Exhibit A; and WHEREAS, the Convertible Notes will be convertible into shares of the Company's common stock, no par value per share (the "Common Stock"); and WHEREAS, Purchaser will have certain registration rights with respect to such shares of Common Stock issuable as interest under, and upon conversion of, the Convertible Notes (collectively, the "Conversion Shares") as set forth in the Registration Rights Agreement in the form attached hereto as Exhibit B; and NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1 DEFINITIONS. The following terms, as used herein, have the following meanings: "Additional Shares of Common Stock" has the meaning set forth in Section 11.6. "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Asset Sale" has the meaning set forth in Section 8.4. "Balance Sheet Date" has the meaning set forth in Section 4.7. "Beachside" means Beachside Commons I, Inc. 8 "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Company. "Benefit Plans" has the meaning set forth in Section 4.9(b). "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Capital Reorganization" has the meaning set forth in Section 11.5. "Change in Control" means (i) after the date of this Agreement, any person or group of persons (within the meaning of Sections 13 and 14 of the Exchange Act and the rules and regulations of the Commission relating to such sections) other than Purchaser shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act) of 33 1/3% or more of the outstanding shares of Common Stock of the Company; (ii) any sale or other disposition (other than by reason of death or disability) to any Person of more than 50,000 shares of Common Stock of the Company by any executive officers and/or directors of the Company (including, but not limited to, Richard P. Smyth) (iii) individuals constituting the Board of Directors of the Company on the date hereof (together with any new Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least 50.1% of the Directors still in office who are either Directors as of the date hereof or whose election or nomination for election was previously so approved), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company then in office. "Closing Bid Price" shall mean for any security as of any date, the lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal securities exchange or trading market where such security is listed or traded or, if the foregoing does not apply, the lowest closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no lowest trading price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such securities as reported in the "Pink Sheets" by the National Quotation Bureau, Inc. If the lowest closing bid price cannot be calculated for such security on such date on any of the foregoing bases, the lowest closing bid price of such security on such date shall be the fair market value as mutually determined by Purchaser and the Company for which the calculation of the closing bid price requires, and in the absence of such mutual determination, as determined by the Board of Directors of the Company in good faith. "Closing Date" means the date on which all of the conditions set forth in Sections 6.1 and 6.2 shall have been satisfied and Convertible Notes in the aggregate principal amount of $750,000 are issued by the Company to Purchaser. "Code" means the Internal Revenue Code of 1986, as amended. 2 9 "Commission" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "Common Stock" means the common stock, no par value per share, of the Company. "Company" means Lahaina Acquisitions, Inc., a Colorado corporation, and its successors. "Company Corporate Documents" means the certificate of incorporation and bylaws of the Company. "Consolidated Net Worth" means at any date the total shareholder's equity which would appear on a consolidated balance sheet of the Company prepared as of such date. "Consolidated Subsidiary" means at any date with respect to any Person or Subsidiary or other entity, the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of a Convertible Note by the holder thereof to the Company as specified in each Convertible Note. "Conversion Price" has the meaning set forth in the Convertible Notes. "Conversion Shares" has the meaning set forth in the Recitals. "Convertible Notes" means the Company's Convertible Notes substantially in the form set forth as Exhibit A hereto. "Deadline" has the meaning set forth in Section 10.1. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which with 3 10 the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Fee" has the meaning set forth in Section 10.4. "Derivative Securities" has the meaning set forth in Section 8.6. "Discounted Equity Offerings" has the meaning set forth in Section 8.6. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Company and each Subsidiary and all members of a controlled group of corporation and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under the Code. "Event of Default" has the meaning set forth in Article XII hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Reimbursement Fee" has the meaning set forth in Section 13.4. "Financing" means a public or private financing consummated (meaning closing and funding) through the issuance of debt or equity securities (or securities convertible into or exchangeable for debt or equity securities) of the Company, other than Permitted Financings. "Fixed Price(s)" has the meaning set forth in Section 11.1. 4 11 "GAAP" has the meaning set forth in Section 1.2. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Guaranty" means a certain Guaranty dated as of the date hereof by and between Company and Beachside. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Intellectual Property" has the meaning set forth in Section 4.20. "Investment" means any investment in any Person, whether by means of share purchase, partnership interest, capital contribution, loan, time deposit or otherwise. "Lien" means any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Listing Applications" has the meaning set forth in Section 4.4. "Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at any time thereafter, the holders of more than 50% in aggregate principal amount of the Convertible Notes outstanding at such time. 5 12 "Market Price" shall mean the Closing Bid Price of the Common Stock preceding the date of determination. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $500,000. "Maturity Date" shall mean the date of maturity of the Convertible Notes; specifically, December 31, 2000. "Maximum Number of Shares" shall mean that percentage that the Company may issue without shareholder approval under the applicable rules of the National Market or the applicable OTC Bulletin Board or equivalent entity, of the then issued and outstanding shares of Common Stock of the Company as of the applicable date of determination, or such greater number of shares as the stockholders of the Company may have previously approved. "Mongoose" means Mongoose Investments, LLC. "NASD" has the meaning set forth in Section 7.10. "Nasdaq Market" means the Nasdaq Stock Market's National Market System. "National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.. "Net Cash Proceeds" means, with respect to any transaction, the total amount of cash proceeds received by the Company or any Subsidiary less (i) reasonable underwriters' fees, brokerage commissions, reasonable professional fees and other customary out-of-pocket expenses payable in connection with such transaction, and (ii) in the case of dispositions of assets, (A) actual transfer taxes (but not income taxes) payable with respect to such dispositions, and (B) the amount of Debt, if any, secured by a Lien on the asset or assets disposed of and required to be, and actually repaid by the Company or any Subsidiary in connection therewith, and any trade payables specifically relating to such asset or assets sold by the Company or any Subsidiary that are not assumed by the purchaser of such asset or assets. "Non-Recourse Financing" means Debt of the Company or any Subsidiary which, by its terms, bars the lender thereof from any action against the Company or any Subsidiary, as borrower or guarantor, if the security value of the project or asset pledged in respect thereof falls below the amount required to repay such Debt. "Notice of Conversion" means the form to be delivered by a holder of a Convertible Note upon conversion of all or a portion thereof to the Company substantially in the form of Exhibit A to the form of Convertible Note. "Officer's Certificate" shall mean a certificate executed by the President, chief executive officer or chief financial officer of the Company in the form of Exhibit D attached hereto. 6 13 "OTC Bulletin Board" means the over-the-counter bulletin board operated by the NASD. "Other Taxes" has the meaning set forth in Section 3.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry on the business of the Company and the Subsidiaries. "Permitted Financings" has the meaning set forth in Section 10.5. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock Company, government (or any agency or political subdivision thereof) or other entity of any kind. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA group for employees of any member of the ERISA group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA group for employees of the Person which was at such time a member of the ERISA Group. "Pledge Agreement" means the pledge agreement between the Company and Purchaser dated the date hereof substantially in the form set forth in Exhibit F attached hereto. "Pledged Shares" has the meaning set forth in Section 6.1(s). "Preferred Stock" means the no par value per share Series A preferred stock of the Company. "Purchase Price" means the purchase price for the Securities set forth in Section 2.2 hereof. "Purchaser" means the entity listed on the signature page hereto and its successors and assigns, including holders from time to time of the Convertible Notes. "Redemption Event" has the meaning set forth in Section 3.4. "Registrable Securities" has the meaning set forth in Section 10.4(a). "Registration Default" has the meaning set forth in Section 10.4(e). "Registration Maintenance Period" has the meaning set forth in Section 10.4(c). "Registration Statement" has the meaning set forth in Section 10.4(b). 7 14 "Registration Rights Agreement" means the agreement between the Company and Purchaser dated the date hereof substantially in the form set forth in Exhibit B attached hereto. "Required Effectiveness Date" has the meaning set forth in Section 10.4(b). "Reserved Amount" has the meaning set forth in Section 7.10(a). "Restricted Payment" means, with respect to any Person, (i) any dividend or other distribution on any shares of capital stock of such Person (except dividends payable solely in shares of capital stock of the same or junior class of such Person and dividends from a wholly-owned direct or indirect Subsidiary of the Company to its parent corporation), (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's capital stock or (b) any option, warrant or other right to acquire shares of such Person's capital stock or (iii) any loan, or advance or capital contribution to any Person (a "Stockholder") owning any capital stock of such Person other than relocation, travel or like advances to officers and employees in the ordinary course of business, and other than reasonable compensation as determined by the Board of Directors. "Rights Offering" has the meaning set forth in Section 11.3. "Sale Event" has the meaning set forth in Section 3.4. "SEC Reports" has the meaning set forth in Section 7.1(a). "Securities" means the Convertible Notes and, as applicable, the Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended. "Share Reorganization" has the meaning set forth in Section 11.2. "Solvency Certificate" shall mean a certificate executed by the treasurer of the Company as to the solvency of the Company, the adequacy of its capital and its ability to pay its debts, all after giving effect to the issuance and sale of the Convertible Notes and the completion of the offering (including without limitation the payment of any fees or expenses in connection therewith), which such Solvency Certificate shall be in the form of Exhibit C attached hereto. "Special Distribution" has the meaning set forth in Section 11.4. "Subsidiary" means, with respect to any Person, any corporation or other entity of which (x) a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person or (y) the results of operations, the assets and the liabilities of which are consolidated with such Person under GAAP. For purposes of this Agreement, Beachside shall be considered a Subsidiary of the Company. 8 15 "Subsidiary Corporate Documents" means the certificates of incorporation and bylaws of each Subsidiary. "Taxes" has the meaning set forth in Section 3.6. "Trading Day" shall mean any Business Day in which the OTC Bulletin Board, National Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transaction Agreements" means this Agreement, the Convertible Notes, and the Registration Rights Agreement, the Pledge Agreement, the Guaranty and the other agreements contemplated by this Agreement. "Transfer" means any disposition of Securities that would constitute a sale thereof under the Securities Act. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Warrant" has the meaning set forth in Section 13.7. SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. ARTICLE II. PURCHASE AND SALE OF SECURITIES SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES. (a) Subject to the terms and conditions set forth herein, the Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, Convertible Notes in the aggregate principal amount of $750,000.00. (b) Purchaser shall acquire the Convertible Notes on the Closing Date in an aggregate principal amount of Seven Hundred Fifty Thousand Dollars ($750,000.00). 9 16 SECTION 2.2 PURCHASE PRICE. The purchase price for the Convertible Notes shall be 100% of the principal amount thereof. No part of the purchase price of the Convertible Notes shall be allocated to the Warrant. Therefore, the aggregate consideration payable by Purchaser to the Company for the Convertible Notes shall be Seven Hundred Fifty Thousand Dollars ($750,000.00) (the "Purchase Price"). SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT. (a) The Purchase Price shall be paid on the Closing Date by wire transfer of immediately available funds on or before 5:00 p.m. (EST). (b) The Convertible Notes issued on the Closing Date shall be dated the date hereof; provided, however, interest shall accrue on the applicable Convertible Notes only from and after the date of funding thereof. ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The Company will pay all amounts due on each Convertible Note by the method and at the address specified for such purpose by Purchaser in writing, without the presentation or surrender of any Convertible Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of this Convertible Note, the holder shall surrender the Convertible Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of any Convertible Note, the holder thereof will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender the Convertible Note to the Company in exchange for a new Convertible Note or Convertible Notes. The Company will afford the benefits of this Section 3.1 to any direct or indirect transferee of the Convertible Note purchased under this Agreement and that has made the same agreement relating to this Convertible Note as Purchaser has in this Section 3.1; provided that such transferee is an "accredited investor" under Rule 501 of the Securities Act. SECTION 3.2 PAYMENT OF INTEREST. Interest shall accrue on the outstanding principal amount of each Convertible Note and shall be payable as specified therein. SECTION 3.3 VOLUNTARY PREPAYMENT. For so long as no Event of Default shall have occurred and is continuing, the Company may, at its option, repay, in whole or in part, the Convertible Notes, per the formula set forth in Section 5.1 of Exhibit A hereto, thereof following at least five (5) Business Days prior written notice to Purchaser (the expiration of such five (5) Business Day period being referred to as the "prepayment date"); provided, however, that if such date is not a Business Day, the prepayment date shall be the next Business Day thereafter. 10 17 SECTION 3.4 MANDATORY PREPAYMENTS. (a) Upon (i) the occurrence of a Change in Control of the Company, (ii) a transfer of all or substantially all of the assets of the Company to any Person in a single transaction or series of related transactions, (iii) a consolidation, merger or amalgamation of the Company with or into another Person in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), or (iv) the occurrence of a Registration Default which continues uncured for a period of forty-five (45) days, then, in each case, the Company shall, upon request of the Majority Holders, redeem the Convertible Notes in cash for the Formula Price. (b) Upon the consummation of one or more Financings, the Company shall use 100% of the Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing is less than $250,000) to redeem the Convertible Notes. The redemption price payable upon any such redemption shall be the Formula Price. (c) Upon the issuance of the Maximum Number of Shares and the failure within 90 days of such issuance to obtain shareholder approval to issue additional shares of Common Stock (the "Redemption Event"), the Company shall redeem the outstanding balance of each Convertible Note for the Formula price as set forth in Section 4.3 the Convertible Notes. SECTION 3.5 PREPAYMENT PROCEDURES. (a) Any permitted prepayment or redemption of the Convertible Notes pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and consummated (for purposes of determining the Formula Price and the time at which Purchaser shall thereafter not be entitled to deliver a Notice of Conversion for the Convertible Notes) as follows: (i) A prepayment pursuant to Section 3.3, the "prepayment date" specified therein; (ii) A redemption pursuant to Section 3.4(a), the date of consummation of the applicable Sale Event or the Registration Default; (iii) A redemption pursuant to Section 3.4(b), three (3) Business Days following the date of consummation of the applicable Financing (meaning closing and funding); and (iv) A redemption pursuant to Section 3.4(c), the date specified in each Convertible Note. 11 18 (b) On the Maturity Date and on the effective date of a repayment or redemption of the Convertible Notes as specified in Section 3.5(a) above, the Company shall deliver by wire transfer of funds the repayment/redemption price to Purchaser of the Convertible Notes subject to redemption. Should Purchaser not receive payment of any amounts due on redemption of its Convertible Notes by reason of the Company's failure to make payment at the times prescribed above for any reason, the Company shall pay to the applicable holder on demand (x) interest on the sums not paid when due at an annual rate equal to the lesser of (I) the maximum lawful rate and (II) 18% per annum, compounded at the end of each thirty (30) days, until the applicable holder is paid in full and (y) all costs of collection, including, but not limited to, reasonable attorneys' fees and costs, whether or not suit or other formal proceedings are instituted. (c) The Company shall select the Convertible Notes to be redeemed in any redemption in which not all of the Convertible Notes are to be redeemed so that the ratio of the Convertible Notes of each holder selected for redemption to the total Convertible Notes owned by that holder shall be the same as the ratio of all such Convertible Notes selected for redemption bears to the total of all then outstanding Convertible Notes. Should any Convertible Notes required to be redeemed under the terms hereof not be redeemed solely by reason of limitations imposed by law, the applicable Convertible Notes shall be redeemed on the earliest possible dates thereafter to the maximum extent permitted by law. (d) Any Notice of Conversion delivered by Purchaser (including delivery via telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of a voluntary repayment pursuant to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above), shall be honored by the Company and the conversion of the Convertible Notes shall be deemed effected on the Conversion Date. In addition, between the effective date of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above and the date the Company is required to deliver the redemption proceeds in full to Purchaser, Purchaser may deliver a Notice of Conversion to the Company. Such notice will be (x) of no force or effect if the Company timely pays the redemption proceeds to Purchaser when due or (y) honored on or as of the date of the Notice of Conversion if the Company fails to timely pay the redemption proceeds to Purchaser when due. SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS. (a) Any and all payments by the Company hereunder or under the Convertible Notes to Purchaser and each "qualified assignee" thereof shall be made free and clear of and without deduction or withholding for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") unless such Taxes are required by law or the administration thereof to be deducted or withheld. If the Company shall be required by law or the administration thereof to deduct or withhold any Taxes from or in respect of any sum payable under the Convertible Notes (i) the holders of the Convertible Notes subject to such Taxes shall have the right, but 12 19 not the obligation, for a period of thirty (30) days commencing upon the day it shall have received written notice from the Company that it is required to withhold Taxes to transfer all or any portion of the Convertible Notes to a qualified assignee to the extent such transfer can be effected in accordance with the other provisions of this Agreement and applicable law; (ii) the Company shall make such deductions or withholdings; (iii) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this Section 3.6) Purchaser receives an amount equal to the sum it would have received if no such deduction or withholding had been made; and (iv) the Company shall forthwith pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable. A "qualified assignee" of a Purchaser is a Person that is organized under the laws of (I) the United States or (II) any jurisdiction other than the United States or any political subdivision thereof and that (y) represents and warrants to the Company that payments of the Company to such assignee under the laws in existence on the date of this Agreement would not be subject to any Taxes and (z) from time to time, as and when requested by the Company, executes and delivers to the Company and the Internal Revenue Service forms, and provides the Company with any information necessary to establish such assignee's continued exemption from Taxes under applicable law. (b) The Company shall forthwith pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (all such taxes, charges and levies hereinafter referred to as "Other Taxes") which arise from any payment made under any of the Transaction Agreements or from the execution, delivery or registration of, or otherwise with respect to, this Agreement other than Taxes payable solely as a result of the transfer from Purchaser to a Person of any Security. (c) The Company shall indemnify Purchaser, or qualified assignee, for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.6) paid by Purchaser, or qualified assignee, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date Purchaser or assignee makes written demand therefor. A certificate as to the amount of such Taxes or Other Taxes submitted to the Company by Purchaser or assignee shall be conclusive evidence of the amount due from the Company to such party. (d) Within 30 days after the date of any payment of Taxes, the Company will furnish to Purchaser the original or a certified copy of a receipt evidencing payment thereof. (e) Purchaser shall provide to the Company a form W-8, stating that it is a non- U.S. person, together with any additional tax forms which may be required under the Code, as amended after the date hereof, to allow interest payments to be made to it without deduction. 13 20 ARTICLE IV. REPRESENTATIONS AND WARRANTIES The Company represents and warrants to Purchaser, as of the Closing Date, the following: SECTION 4.1 ORGANIZATION AND QUALIFICATION. The Company and each Subsidiary is a corporation (or other legal entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. A "Material Adverse Effect" means any material adverse effect on the operations, results of operations, properties, assets or condition (financial or otherwise) of the Company or the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. SECTION 4.2 AUTHORIZATION AND EXECUTION. (a) The Company has all requisite corporate power and authority to enter into and perform each Transaction Agreement and to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof. (b) The execution, delivery and performance by the Company of each Transaction Agreement and the issuance by the Company of the Securities have been duly and validly authorized and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. (c) This Agreement has been duly executed and delivered by the Company. (d) This Agreement constitutes, and upon execution and delivery thereof by the Company, each of the Transaction Agreements will constitute, a valid and binding agreement of the Company, in each case enforceable against the Company in accordance with its respective terms. SECTION 4.3 CAPITALIZATION . As of the date hereof, the authorized, issued and outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto and except as set forth on Schedule 4.3 no other shares of capital stock of the Company will be outstanding as of the Closing Date. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into 14 21 or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Convertible Notes or Conversion Shares. The Company has furnished to Purchaser true and correct copies of the Company's Corporate Documents, and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. SECTION 4.4 GOVERNMENTAL AUTHORIZATION. The execution and delivery by the Company of the Transaction Agreements does not and will not, the issuance and sale by the Company of the Securities does not and will not, and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect, (c) listing applications ("Listing Applications") to be filed with the OTC Bulletin Board or the National Market relating to the Conversion Shares of Common Stock issuable upon conversion of the Convertible Notes, and (d) the filing of a "Form D" as described in Section 7.13 below. SECTION 4.5 ISSUANCE OF SHARES. Upon conversion in accordance with the terms of the Convertible Notes, the Conversion Shares shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens and charges with respect to issuance and shall not be subject to preemptive rights or similar rights of any other stockholders of the Company. Assuming the representations and warranties of Purchaser herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable U.S. federal and state securities laws. The Company understands and acknowledges that, in certain circumstances, the issuance of Conversion Shares could dilute the ownership interests of other stockholders of the Company. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Convertible Notes is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. SECTION 4.6 NO CONFLICTS. The execution and delivery by the Company of the Transaction Agreements to which it is a party did not and will not, the issuance and sale by the Company of the Securities did not and will not and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien 15 22 on any asset of the Company or any Subsidiary. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the conduct of its businesses or the ownership of its properties, except where such failure would not have a Material Adverse Effect. SECTION 4.7 FINANCIAL INFORMATION. Since June 30, 1998 (the "Balance Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (y) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its subsidiaries except in the ordinary course of business; and no fact or condition exists or is contemplated or threatened which might cause such a change in the future. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries for the periods ending September 30, 1997, and June 30, 1998, respectively, and the related consolidated statements of income, changes in stockholders' equity and changes in cash flows for the periods then ended, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments. Such financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended and, except as indicated therein, reflect all claims against and all Debts and liabilities of the Company and its Subsidiaries, fixed or contingent. SECTION 4.8 LITIGATION. Except as set forth on Schedule 4.8, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or which challenges the validity of any Transaction Agreements. SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS. (a) Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or 16 23 the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. (b) The benefit plans not covered under clause (a) above (including profit sharing, deferred compensation, stock option, employee stock purchase, bonus, retirement, health or insurance plans, collectively the "Benefit Plans") relating to the employees of the Company are duly registered where required by, and are in good standing in all material respects under, all applicable laws. All required employer and employee contributions and premiums under the Benefit Plans to the date hereof have been made, the respective fund or funds established under the Benefit Plans are funded in accordance with applicable laws, and no past service funding liabilities exist thereunder. (c) No Benefit Plans have any unfunded liabilities, either on a "going concern" or "winding up" basis and determined in accordance with all applicable laws and actuarial practices and using actuarial assumptions and methods that are reasonable in the circumstances. No event has occurred and no condition exists with respect to any Benefit Plans that has resulted or could reasonably be expected to result in any pension plan having its registration revoked or wound up (in whole or in part) or refused for the purposes of any applicable laws or being placed under the administration of any relevant pension benefits regulatory authority or being required to pay any taxes or penalties (in any material amounts) under any applicable laws. SECTION 4.10 ENVIRONMENTAL MATTERS. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. SECTION 4.11 TAXES. All United States federal, state, county, municipality, local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes and other governmental charges have been established in accordance with GAAP. SECTION 4.12 INVESTMENTS, JOINT VENTURES. Other than as set forth in Schedule 4.12, the Company has no Subsidiaries or other direct or indirect Investment in any Person, and the Company is not a party to any partnership, management, shareholders' or joint venture or similar agreement. SECTION 4.13 NOT AN INVESTMENT COMPANY. Neither the Company nor any Subsidiary is an "Investment Company" within the meaning of Investment Company Act of 1940, as amended. SECTION 4.14 FULL DISCLOSURE. The information heretofore furnished by the Company to Purchaser for purposes of or in connection with this Agreement or any transaction contemplated hereby does not, and all such information hereafter furnished by the Company or any Subsidiary to 17 24 Purchaser will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No form of general solicitation or general advertising was used by the Company or, to the best of its actual knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. Neither the Company, nor, to its knowledge, any Person acting on behalf of the Company, has, either directly or indirectly, sold or offered for sale to any Person (other than Purchaser) any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to Purchaser and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. The issuance of the Securities to Purchaser will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of the OTC Bulletin Board. SECTION 4.16 PERMITS. (a) Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; (c) no event has occurred which allows, or after notice of lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit; and (d) the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. SECTION 4.17 LEASES. Except for leases to tenants of the real property of Beachside, neither the Company nor any Subsidiary is a party to any capital lease obligation with a value greater than $100,000 or to any operating lease with an aggregate annual rental greater than $100,000 during the life of such lease. SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a liability, other than (i) those liabilities provided for in the financial statements delivered pursuant to Section 4.7 and referred to on Schedule 4.3 and Schedule 6.1(q) hereof and (ii) other undisclosed liabilities which, individually or in the aggregate, would not have a Material Adverse Effect. SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any Subsidiary is, or will be upon issuance and sale of the Securities and the use of the proceeds described herein, subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the 18 25 Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Agreement. SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, all material patents, trademarks, trade names, copyrights, technology, know-how and processes (collectively, "Intellectual Property") used in, or necessary for the conduct of its business; no claims have been asserted by any Person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best of Company's and its Subsidiaries' knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by the Company and its Subsidiaries will not infringe upon the rights of any Person. SECTION 4.21 INSURANCE. The Company and its Subsidiaries maintain, with financially sound and reputable insurance companies, insurance in at least such amounts and against such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. SECTION 4.22 TITLE TO PROPERTIES. The Company and its Subsidiaries have good and marketable title to all their respective properties reflected on the financial statements referred to in Section 4.7 and Section 6.1(q), free and clear of all Liens. SECTION 4.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed in accordance with managements' general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. SECTION 4.24 YEAR 2000 COMPLIANCE. (a) COMPUTER AND OTHER SYSTEMS. (i) All software programs and computer hardware that are owned, leased or licensed by the Company and each Subsidiary, or used by third parties on behalf of the Company and each Subsidiary ("Computer Systems"), are designated to be used prior to, during and after the calendar year 2000 A.D., including leap years; (ii) all other operational systems that use software or equipment that are owned, leased, or licensed by the Company and each Subsidiary, or used by third parties on behalf of the Company and each Subsidiary ("Other Systems"), are designated to be used prior to, during or after the calendar year 2000 A.D., including leap years; (iii) the Computer systems and Other Systems will properly operate during each such period without error or degradation of performance caused by a lack of Year 2000 Capabilities; and (iv) the Computer Systems and Other Systems will properly operate during each such period without requiring intervention or modification to Date Data. 19 26 (b) CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best of the Company's knowledge after specific inquiry of all of its material suppliers, vendors and landlords, the Company and each Subsidiary will not suffer a loss from interruption or cessation of business operations, in whole or in part, as a result of such suppliers, vendors or landlords failing to provide materials, labor, supplies or access to leased space for the operation of the Company and each Subsidiary as a result of such suppliers or vendors not having Year 2000 Capabilities. (c) CAPABILITIES. For purposes of this Agreement, (x) "Year 2000 Capabilities" means the ability to: (i) manage and manipulate data involving dates, including single century formulas and multi-century formulas, in a manner that will not cause an abnormally ending scenario or generate incorrect values or invalid results involving such dates; (ii) include the indication of proper century dates in all date-related user interface functions and date fields; and (iii) operate with proper century dates in date-related software or hardware interface functions; and (y) "Date Data" means any existing data or input of date which includes an indication of or reference to date. SECTION 4.25 FOREIGN PRACTICES. Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any Subsidiary has made any payments of funds of the Company or Subsidiary, or received or retained any funds, in each case in violation of any law, rule or regulation. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 5.1 PURCHASER. Purchaser hereby represents and warrants to the Company that: (a) Purchaser is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act and the Securities to be acquired by it pursuant to this Agreement are being acquired for its own account and, as of the date hereof, not with a view toward, or for sale in connection with, any distribution thereof except in compliance with applicable United States federal and state securities law; provided that the disposition of Purchaser's property shall at all times be and remain within its control; (b) the execution, delivery and performance of this Agreement and the purchase of the Securities pursuant thereto are within Purchaser's corporate or partnership powers, as applicable, and have been duly and validly authorized by all requisite corporate or partnership action; (c) this Agreement has been duly executed and delivered by Purchaser; (d) the execution and delivery by Purchaser of the Transaction Agreements to which it is a party does not, and the consummation of the transactions contemplated hereby and thereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, or (ii) any agreement, judgment, injunction, order, decree or other instrument binding upon Purchaser; 20 27 (e) Purchaser understands that the Securities have not been registered under the Securities Act and may not be transferred or sold except as specified in this Agreement or the remaining Transaction Agreements; (f) this Agreement constitutes a valid and binding agreement of Purchaser enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency or similar laws affecting the enforceability of creditors rights generally and (ii) equitable principles of general applicability; (g) Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and Purchaser is capable of bearing the economic risks of such investment; (h) Purchaser is knowledgeable, sophisticated and experienced in business and financial matters; Purchaser has previously invested in securities similar to the Securities and fully understands the limitations on transfer described herein; Purchaser has been afforded access to information about the Company and the financial condition, results of operations, property, management and prospects of the Company sufficient to enable it to evaluate its investment in the Securities; Purchaser has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and the risks of investing in the Securities; and Purchaser has been afforded the opportunity to obtain such additional information which the Company possesses or can acquire that is necessary to verify the accuracy and completeness of the information given to Purchaser concerning the Company. The foregoing does not in any way relieve the Company of its representations and other undertakings hereunder, and shall not limit Purchaser's ability to rely thereon; (i) no part of the source of funds used by Purchaser to acquire the Securities constitutes assets allocated to any separate account maintained by Purchaser in which any employee benefit plan (or its related trust) has any interest; and (j) Purchaser is a corporation organized under the laws of Bermuda. ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE. The obligation of Purchaser hereunder to purchase the Convertible Notes at the Closing is subject to the satisfaction, on or before the Closing Date of each of the following conditions, provided that these conditions are for Purchaser's sole benefit and may be waived by Purchaser at any time in its sole discretion: (a) The Company shall have duly executed this Agreement, the Registration Rights Agreement and the Guaranty, and delivered the same to Purchaser; 21 28 (b) The Company shall have delivered to Purchaser duly executed certificates representing the Convertible Notes in accordance with Section 2.3 hereof; (c) The Company shall have delivered the Solvency Certificate; (d) The representations and warranties of the Company contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by such Transaction Agreements to be performed, satisfied or complied with by it at or prior to the Closing Date. Purchaser shall have received an Officer's Certificate executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by Purchaser, including but not limited to certificates with respect to the Company Corporate Documents, resolutions relating to the transactions contemplated hereby and the incumbencies of certain officers and Directors of the Company. The form of such certificate is attached hereto as Exhibit D; (e) The Company shall have received all governmental, Board of Directors, shareholders and third party consents and approvals necessary or desirable in connection with the issuance and sale of the Securities and the consummation of the transactions contemplated by the Transaction Agreements; (f) All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; (g) No law or regulation shall have been imposed or enacted that, in the judgment of Purchaser, could adversely affect the transactions set forth herein or in the other Transaction Agreements, and no law or regulation shall have been proposed that in the reasonable judgment of Purchaser could reasonably have any such effect; (h) Purchaser shall have received opinions, dated the Closing Date, of Florida, Colorado and other counsel to the Company, in form and substance satisfactory to Purchaser; (i) All fees and expenses due and payable by the Company on or prior to the Closing Date shall have been paid; (j) The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of Purchaser; 22 29 (k) There shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary since December 31, 1997; (l) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that challenges the validity of or purports to affect this Agreement or any other Transaction Agreement, or other transaction contemplated hereby or thereby or that could reasonably be expected to have a Material Adverse Effect, or any material adverse effect on the enforceability of the Transaction Agreements or the Securities or the rights of the holders of the Securities or Purchaser hereunder; (m) Purchaser shall have confirmed the receipt of the Convertible Notes to be issued, duly executed by the Company in the denominations and registered in the name of Purchaser; (n) There shall not have occurred any disruption or adverse change in the financial or capital markets generally, or in the market for the Common Stock (including but not limited to any suspension or delisting), which Purchaser reasonably deems material in connection with the purchase of the Securities; (o) Immediately before and after the Closing Date, no Default or Event of Default shall have occurred and be continuing; (p) Purchaser shall have received all other opinions, resolutions, certificates, instruments, agreements or other documents as they shall reasonably request; (q) The Company or its Subsidiary shall have acquired in a manner satisfactory to Purchaser the stock of Beachside and Beachside shall be the owner of the real property described in Schedule 6.1(q) (the "Beachside Property") subject to only those Liens approved by Purchaser in its sole discretion; and (r) Purchaser shall have received a second mortgage and title insurance commitment on the Beachside Property satisfactory in form and substance to Purchaser in its sole discretion. (s) Mongoose shall have (A) pledged as collateral for the Convertible Notes 750,000 shares of Common Stock represented by Certificate No. 490 (the "Pledged Shares") to Purchaser pursuant to the terms of the Pledge Agreement and (B) delivered to Purchaser duly executed certificates representing the Pledged Shares. (t) The terms of the Preferred Stock is not in conflict with the Transaction Agreements. (u) Purchaser shall have received an appraisal of the Beachside Property 23 30 satisfactory in form and substance to the Purchaser in its sole discretion. (v) Mongoose shall have purchased all shares of Common Stock owned by Paxford Investments, Ltd. for $300,000. (w) The Company shall have acquired 100% of the stock of Beachside from Mongoose in exchange for (i) a demand note of Lahaina in favor of Mongoose for $682,500 (ii) 1,250,000 shares of Common Stock and (iii) 1,910,000 shares of Preferred Stock newly issued to Mongoose. SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the Company to issue and sell the Securities to Purchaser pursuant to this Agreement are subject to the satisfaction, at or prior to any Closing Date, of the following conditions: (a) The representations and warranties of Purchaser contained herein shall be true and correct in all material respects on the Closing Date and Purchaser shall have performed and complied in all material respects with all agreements required by this Agreement to be performed or complied with by Purchaser at or prior to the Closing Date; (b) The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; (c) Receipt by the Company of duly executed counterparts of this Agreement and the Registration Rights Agreement signed by Purchaser; (d) The Company shall have received payment of Purchase Price, less the Expense Reimbursement Fee. ARTICLE VII. AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as any Convertible Notes remain outstanding and for the benefit of Purchaser: SECTION 7.1 INFORMATION. The Company will deliver to each holder of the Convertible Notes: (a) promptly upon the filing thereof, copies of (i) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q and 8-K (or other equivalents) which the Company or any Subsidiary has filed with the Commission (collectively, "SEC Reports"); (b) simultaneously with the delivery of each item referred to in clause (a) above, a certificate from the chief financial officer of the Company stating that no Default or Event of Default has occurred and is continuing, or, if as of the date of such delivery a Default shall 24 31 have occurred and be continuing, a certificate from the Company setting forth the details of such Default or Event of Default and the action which the Company is taking or proposes to take with respect thereto; (c) within two (2) days after any officer of the Company obtains knowledge of a Default or Event of Default, or that any Person has given any notice or taken any action with respect to a claimed Default hereunder, a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposed to take with respect thereto; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders; (e) at least two (2) Business Days prior to the consummation of any Financing or other event requiring a repayment of the Convertible Notes under Section 3.4, notice thereof together with a summary of all material terms thereof and copies of all documents and instruments associated therewith; (f) notice promptly upon the occurrence of any event by which the Reserved Amount becomes less than the sum of (i) 1.5 times the maximum number of Conversion Shares issuable pursuant to the Transaction Agreements; and (g) promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any Subsidiary is a party in which the amount involved is $250,000 or more and not covered by insurance or in which injunctive or similar relief is sought. SECTION 7.2 PAYMENT OF OBLIGATIONS. The Company will, and will cause each Subsidiary to, pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and will cause each Subsidiary to, keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. SECTION 7.4 MAINTENANCE OF EXISTENCE. The Company will, and will cause each Subsidiary to, continue to engage in business of the same general type as now conducted by the Company and such Subsidiaries, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business. 25 32 SECTION 7.5 COMPLIANCE WITH LAWS. The Company will, and will cause each Subsidiary to, comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or such Subsidiary. SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, during normal business hours, Purchaser' Representative or an affiliate thereof, as representatives of Purchaser, to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective executive officers and independent public accountants (and by this provision the Company authorizes its independent public accountants to disclose and discuss with Purchaser the affairs, finances and accounts of the Company and its Subsidiaries), all at such reasonable times. SECTION 7.7 INVESTMENT COMPANY ACT. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. SECTION 7.8 USE OF PROCEEDS. The proceeds from the issuance and sale of the Convertible Notes by the Company shall be used to finance the Company's (i) acquisition of 100% of the stock of Beachside (together with the issuance of Common Stock and Preferred Stock of the Company to Mongoose), (ii) payment of fees, and (iii) working capital. None of the proceeds from the issuance and sale of the Convertible Notes by the Company pursuant to this Agreement will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS. The Company will, and will cause each Subsidiary to, comply, in all respects, with all terms and conditions of all material contracts to which it is subject. SECTION 7.10 RESERVED SHARES AND LISTINGS. (a) The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Convertible Notes and issuance of the Conversion Shares (based on the conversion price of the Convertible Notes in effect from time to time) (the "Reserved Amount"). The Company shall not reduce the Reserved Amount without the prior written consent of Purchaser. With respect to all Securities which contain an indeterminate number of shares of Common Stock issuable in 26 33 connection therewith (such as the Convertible Notes), the Company shall include in the Reserve Amount, no less than two (2) times the number of shares that is then actually issuable upon conversion or exercise of such Securities. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued or issuable upon conversion of the Convertible Notes, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, either (x) calling a special meeting of shareholders to authorize additional shares, in the case of an insufficient number of authorized shares or (y) in lieu thereof, consummating the immediate repurchase of the Convertible Notes contemplated in Section 4.3 of each Convertible Note and Sections 3.4(c) and 10.3 hereof, respectively. (b) The Company shall promptly file the Listing Applications and secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion or exercise of the Convertible Notes. The Company will maintain the listing and trading of its Common Stock on the OTC Bulletin Board. The Company will use its commercially reasonable best efforts to obtain as soon as practicable and maintain the listing and trading of its Common Stock on a National Market. The Company will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall promptly provide to Purchaser copies of any notices it receives regarding the continued eligibility of the Common Stock for listing on the OTC Bulletin Board or any National Market. SECTION 7.11 IRREVOCABLE INSTRUCTIONS. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of Purchaser or its nominee, for the Conversion Shares, in such amounts as specified from time to time by Purchaser to the Company upon proper conversion of the Convertible Notes or exercise of the Warrants. Upon conversion of any Convertible Notes in accordance with their terms and/or exercise of any Warrants in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be. As long as the Registration Statement contemplated by the Registration Rights Agreement shall remain effective, the shares of Common Stock issuable upon conversion of any Convertible Notes shall be issued to any transferee of such shares from Purchaser without any restrictive legend upon appropriate evidence of transfer in compliance with the Securities Act and the rules and regulations of the Commission; provided that for so long as the Registration Statement is effective, no opinion of counsel will be required to effect any such transfer. The Company further warrants and agrees that no instructions other than these instructions have been or will be given to its transfer agent. Nothing in this Section 7.11 shall affect in any way a Purchaser's obligation to comply with all securities laws applicable to Purchaser upon resale of such shares of Common Stock, including any prospectus delivery requirements. 27 34 SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION. So long as any of the Securities are outstanding, the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act. The Company shall not terminate its status as an issuer required to file reports under the Exchange Act, even if the Exchange Act or the rules and regulations thereunder would permit such termination. If at anytime the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. SECTION 7.13 FORM D; BLUE SKY LAWS. The Company agrees to file a "Form D" with respect to the Securities as required under Regulation D of the Securities Act and to provide a copy thereof to Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to Purchaser at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to Purchaser on or prior to the Closing Date. ARTICLE VIII. NEGATIVE COVENANTS The Company hereby agrees that after the date hereof for so long as any Convertible Notes remain outstanding and for the benefit of Purchaser: SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist (at any time after the Closing Date, after giving effect to the application of the proceeds of the issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted Financing, (y) Debt incurred in connection with equipment leases to which the Company or its Subsidiaries are a party incurred in the ordinary course of business; and (z) Debt incurred in connection with trade accounts payable, imbalances and refunds arising in the ordinary course of business and (ii) any equity securities (including Derivative Securities) (other than those securities that are issuable (x) under or pursuant to stock option plans, warrants or other rights programs that exist as of the date hereof, (z) in connection with the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement), unless the Company complies with the mandatory prepayment terms of Section 3.4(b) hereof. SECTION 8.2 TRANSACTIONS WITH AFFILIATES. The Company and each Subsidiary will not, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition or stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant to those agreements specifically identified on Schedule 8.2 attached hereto (with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary 28 35 from a Person that is not an Affiliate of the Company upon negotiation at arms' length, as determined in good faith by the Board of Directors of the Company; provided that no determination of the Board of Directors shall be required with respect to any such transactions entered into in the ordinary course of business. SECTION 8.3 MERGER OR CONSOLIDATION. Except for those transactions, if any, set forth in Schedule 8.3, all of which are contemplated to be consummated prior to or simultaneously with the transactions contemplated by this Agreement, the Company will not, in a single transaction or a series of related transactions (i) consolidate with or merge with or into any other Person, or (ii) permit any other Person to consolidate with or merge into it, unless the Company shall be the survivor of such merger or consolidation and (x) immediately before and immediately after given effect to such transaction (including any indebtedness incurred or anticipated to be incurred in connection with the transaction), no Default or Event of Default shall have occurred and be continuing; and (y) the Company has delivered to Purchaser an Officer's Certificate stating that such consolidation, merger or transfer complies with this Agreement, and that all conditions precedent in this Agreement relating to such transaction have been satisfied. SECTION 8.4 LIMITATION ON ASSET SALES. Neither the Company nor any Subsidiary will consummate an Asset Sale of material assets of the Company or any Subsidiary without the prior written consent of Purchaser, which consent shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) or sales of capital stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purpose of this definition as a "disposition"), including any disposition by means of a merger, consolidation or similar transaction other than a disposition of property or assets at fair market value in the ordinary course of business. SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor any Subsidiary will waive any provision of, amend, or suffer to be amended, any provision of such entity's existing Debt, any material contract or agreement previously or hereafter filed by the Company with the Commission as part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if such amendment, in the Company's reasonable judgment, would materially adversely affect Purchaser or the holders of the Securities without the prior written consent of Purchaser. SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS. (a) In addition to and not in lieu of the covenant specified in Section 8.1 above, until such time as all of the Convertible Notes have been either redeemed or converted into Conversion Shares in full, the Company agrees that it will not issue any of its equity securities (or securities convertible into or exchangeable or exercisable for equity securities (the "Derivative Securities")) on terms that allow a holder thereof to acquire such equity securities (or Derivative Securities) at a discount to the Market Price of the Common Stock at the time of issuance or, in the case of Derivative Securities at a conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance so long as such conversion is not below the Market Price 29 36 on the date of issuance (each such event, a "Discounted Equity Offering"). As used herein, "discount" shall include, but not be limited to, (i) any warrant, right or other security granted or offered in connection with such issuance which, on the applicable date of grant, is offered with an exercise or conversion price, as the case may be, at less than the then current Market Price of the Common Stock or, if such security has an exercise or conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance, then at a price below the Market Price on such date of exercise or conversion, as the case may be, or (ii) any commissions, fees or other allowances paid in connection with such issuances (other than customary underwriter or placement agent commissions, fees or allowances). For the purposes of determining the Market Price at which Common Stock is acquired under this Section, normal underwriting commissions and placement fees (including underwriters' warrants) shall be excluded. (b) Until such time as all of the Convertible Notes have been either redeemed or converted into Conversion Shares in full, the Company agrees it will not issue any of its equity securities (or Derivative Securities), unless any shares of Common Stock issued or issuable in connection therewith are "restricted securities." As used herein "restricted securities" shall mean securities which may not be sold by virtue of contractual restrictions imposed by the Company either pursuant to an exemption from registration under the Securities Act or pursuant to a registration statement filed by the Company with the Commission, in each case prior to twelve (12) months following the date of issuance of such securities. (c) The restrictions contained in this Section 8.6 shall not apply to the issuance by the Company of (or the agreement to issue) Common Stock or Derivative Securities in connection with (i) the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement, or (ii) stock option or other compensatory plans. SECTION 8.7 LIMITATION ON STOCK REPURCHASES. Except as otherwise set forth in the Convertible Notes, the Company shall not, without the written consent of the Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares. ARTICLE IX. RESTRICTIVE LEGENDS SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective dates of issuance, none of the Securities shall be transferable except upon the conditions specified in this Article IX, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the Transfer of any of such Securities or any interest therein. Each Purchaser will use its best efforts to cause any proposed transferee of any Securities held by it to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Article IX. 30 37 SECTION 9.2 RESTRICTIVE LEGENDS. (a) Each certificate for Securities issued to a Purchaser or to a subsequent transferee shall (except as contemplated by Section 7.11 and Section 9.1 hereof) include a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT. SECTION 9.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed Transfer of the Securities (other than a Transfer (i) registered or exempt from registration under the Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, provided that any such transferee shall agree to be bound by the terms of this Agreement and the Registration Rights Agreement, or (iii) to be made in reliance on Rule 144 under the Securities Act), the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer, which shall be accompanied by (a) an opinion of counsel reasonably acceptable to the Company, confirming that such transfer does not give rise to a violation of the Securities Act, (B) representation letters in form and substance reasonably satisfactory to the Company to ensure compliance with the provisions of the Securities Act and (C) letters in form and substance reasonably satisfactory to the Company from each such transferee stating such transferee's agreement to be bound by the terms of this Agreement and the Registration Rights Agreement. Such proposed Transfer may be effected only if the Company shall have received such notice of transfer, opinion of counsel, representation letters and other letters referred to in the immediately preceding sentence, whereupon the holder of such Securities shall be entitled to Transfer such Securities in accordance with the terms of the notice delivered by the holder to the Company. ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES SECTION 10.1 LIQUIDATED DAMAGES. (a) The Company shall, and shall use its commercially reasonable best efforts to cause its transfer agent to, issue and deliver shares of Common Stock consistent with Section 7.11 hereof within five (5) Trading Days of delivery of a Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any party receiving Securities by transfer from Purchaser) at the address of Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the case may be. The Company understands that a delay in the issuance of such certificates after the Deadline could result in economic loss to Purchaser. 31 38 (b) Without in any way limiting Purchaser's right to pursue other remedies, including actual damages and/or equitable relief, the Company agrees that if delivery of the Conversion Shares is more than one (1) Business Day after the Deadline (other than a failure due to the circumstances described in Section 4.3 of the Convertible Notes, which failure shall be governed by such Section) the Company shall pay to Purchaser, as liquidated damages and not as a penalty, $500 for each $100,000 of Convertible Notes then outstanding per day in cash, for each of the first ten (10) days beyond the Deadline, and $1,000 for each $100,000 of Convertible Notes then outstanding per day in cash for each day thereafter that the Company fails to deliver such Common Stock. Such cash amount shall be paid to Purchaser by the fifth day of the month following the month in which it has accrued or, at the option of Purchaser (by written notice to the Company by the first day of the month following the month in which it has accrued), shall be added to the principal amount of the Convertible Note (if then outstanding) payable to Purchaser, in which event interest shall accrue thereon in accordance with the terms of the Convertible Notes and such additional principal amount shall be convertible into Common Stock in accordance with the terms of the Convertible Notes. SECTION 10.2 CONVERSION NOTICE. The Company agrees that, in addition to any other remedies which may be available to Purchaser, including, but not limited to, the remedies available under Section 10.1, in the event the Company fails for any reason (other than as a result of actions taken by a Purchaser in breach of this Agreement) to effect delivery to a Purchaser of certificates with or without restrictive legends as contemplated by Article IX representing the shares of Common Stock on or prior to the Deadline after conversion of any Convertible Notes, Purchaser will be entitled, if prior to the delivery of such certificates, to revoke the Notice of Conversion, as applicable, by delivering a notice to such effect to the Company whereupon the Company and Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. SECTION 10.3 CONVERSION LIMIT. Notwithstanding the conversion rights under the Convertible Notes, unless Purchaser delivers a waiver in accordance with the immediately following sentence, in no event shall Purchaser be entitled to convert any portion of the Convertible Notes, in excess of that portion of the Convertible Notes, as applicable, of which the sum of (i) the number of shares of Common Stock beneficially owned by Purchaser and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Convertible Note or other Derivative Securities convertible into or exchangeable for shares of Common Stock which contain a limitation similar to that set forth in this Section 10.3), and (ii) the number of shares of Common Stock issuable upon the conversion of the portion of the Convertible Note with respect to which this determination is being made, would result in beneficial ownership by Purchaser and its Affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing limitation shall not apply and shall be of no further force or effect (i) immediately preceding and upon the occurrence of any voluntary or mandatory redemption or repayment transaction described herein or in the Convertible Notes, (ii) immediately preceding and upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence of any Event 32 39 of Default which is not cured within the greater of the applicable time period specified in either (A) such written notice of Purchaser or (B) Section 12.1 hereof. SECTION 10.4 REGISTRATION RIGHTS. (a) The Company shall grant Purchaser registration rights covering the Conversion Shares and the Shares issued upon exercise of the Warrant (the "Registrable Securities") on the terms set forth in the Registration Rights Agreement and herein. (b) The Company shall prepare and file on or before December 30, 1998 a registration statement (the "Registration Statement") on Form S-1 (or such other form as is then available for registration) covering the resale of the Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission no later than February 12, 1999 following the filing of the Registration Statement (the "Required Effectiveness Date"). The Company shall pay all expenses of registration (other than underwriting fees and discounts, if any, in respect of Registrable Securities offered and sold under such Registration Statement by Purchaser). (c) If the Registration Statement is not declared effective by the Commission by the Required Effectiveness Date, the Company shall pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to 2% of the outstanding principal amount of the Convertible Notes, prorated, for each 30 day period the Registration Statement is not declared effective by the Commission, which amount will be increased to 3% of the outstanding principal amount of the Convertible Notes in the event that the Registration Statement is not declared effective by the Commission within 90 days of the Closing Date. In addition, commencing 120 days following the Closing Date, the Conversion Price of the Convertible Notes will decrease by 1% for each 30-day period in which the Registration Statement is not declared effective, up to a maximum discount of 30%. In the event the Company fails to obtain a valid Registration Statement by the 180th day following the Closing Date, the Company will redeem the Convertible Notes as set forth in Section 5 of the Convertible Notes. Additionally, the Company will grant to Purchaser first priority piggyback registration rights in the event the Company proposes to effect a registered offering of Common Stock or warrants or both prior to the filing of the Registration Statement referenced above. (d) Any such liquidated damages shall be paid in cash by the Company to Purchaser by wire transfer in immediately available funds on the last day of each calendar week following the event requiring its payment. (e) If, following the declaration of effectiveness of the Registration Statement, the Registration Statement (or any prospectus or supplemental prospectus contained therein) shall cease to be effective for any reason (including but not limited to the occurrence of any event that results in any prospectus or supplemental prospectus containing an untrue statement of a material fact or omitting a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which 33 40 they were made, not misleading) (a "Registration Default"), the Company shall immediately take all necessary steps to cause the Registration Statement to be amended or supplemented so as to cure such Registration Default. Failure to cure a Registration Default within ten (10) business days shall result in the Company paying to Purchaser liquidated damages at the rate of $1,000 per day from the date of such Registration Default until the Registration Default is cured. SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of sixty (60) days following the sooner to occur of (i) the effective date of the Registration Statement or (ii) the date that the Convertible Notes are converted in full, the Company will not sell, or offer to sell, any securities (including credit facilities which are convertible into securities which may be issued at a discount to the then current Market Price) other than borrowings under conventional credit facilities existing as of the date hereof, stock issued or credit facilities to be established in connection with acquisitions, employee and director stock options of the Company, existing rights and warrants of the Company and securities issued under the Convertible Notes. In addition, the Company shall not issue any securities in connection with a strategic alliance entered into by the Company unless such securities are the subject of a one year statutory or contractual hold period or, if not subject to such a hold period, unless the Purchaser has fully converted all outstanding Convertible Notes. Notwithstanding the foregoing, the Company may enter into the following types of transactions (collectively referred to as "Permitted Financings"): (1) "permanent financing" transactions, which would include any form of debt or equity financing (other than an underwritten offering), which is followed by a reduction of the said financing commitment to zero and payment of all related fees and expenses; (2) "project financing" which provide for the issuance of non-recourse debt instruments in connection with the operation of the Company's business as presently conducted or as proposed to be conducted; and (3) an underwritten offering of Common Stock, provided that such offering provides for the registration of the Common Stock to be received by Purchaser as a result of the conversion of the Convertible Notes held by the Purchaser. ARTICLE XI. ADJUSTMENT OF FIXED PRICE SECTION 11.1 REORGANIZATION. The Conversion Price and the dollar amount set forth in (collectively, the "Fixed Prices") shall be adjusted, as applicable, as hereafter provided. SECTION 11.2 SHARE REORGANIZATION. If and whenever the Company shall: (i) subdivide the outstanding shares of Common Stock into a greater number of shares; (ii) consolidate the outstanding shares of Common Stock into a smaller number of shares; (iii) issue Common Stock or securities convertible into or exchangeable for shares of Common Stock as a stock dividend to all or substantially all the holders of Common Stock; or 34 41 (iv) make a distribution on the outstanding Common Stock to all or substantially all the holders of Common Stock payable in Common Stock or securities convertible into or exchangeable for Common Stock; any of such events being herein called a "Share Reorganization," then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for the purposes of the Share Reorganization or, if no record date is fixed, the effective date of the Share Reorganization, by multiplying the applicable Fixed Price in effect on such record or effective date, as the case may be, by a fraction of which: (I) the numerator shall be the number of shares of Common Stock outstanding on such record or effective date (without giving effect to the transaction); and (II) the denominator shall be the number of shares of Common Stock outstanding after giving effect to such Share Reorganization, including, in the case of a distribution of securities convertible into or exchangeable for shares of Common Stock, the number of shares of Common Stock that would have been outstanding if such securities had been converted into or exchanged for Common Stock on such record or effective date. SECTION 11.3 RIGHTS OFFERING. If and whenever the Company shall issue to all or substantially all the holders of Common Stock, rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date of such issue, to subscribe for or purchase Common Stock (or Derivative Securities), at a price per share (or, in the case of securities convertible into or exchangeable for Common Stock, at an exchange or conversion price per share at the date of issue of such securities) of less than 95% of the Market Price of the Common Stock on such record date (any such event being herein called a "Rights Offering"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which holders of Common Stock are determined for the purposes of the Rights Offering, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (i) the numerator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) a number obtained by dividing: (A) either, (x) the product of the total number of shares of Common Stock so offered for subscription or purchase and the price at which such shares are so offered, or (y) the product of the maximum number of shares of Common Stock into or for which the convertible or exchangeable securities so offered for subscription or purchase may be converted or exchanged and the conversion or exchange price of such securities, or, as the case may be, by 35 42 (B) the Market Price of the Common Stock on such record date; and (ii) the denominator shall be the sum of: (I) the number of shares of Common Stock outstanding on such record date; and (II) the number of shares of Common Stock so offered for subscription or purchase (or, in the case of Derivative Securities, the maximum number of shares of Common Stock for or into which the securities so offered for subscription or purchase may be converted or exchanged). To the extent that such rights, options or warrants are not exercised prior to the expiry time thereof, the applicable Fixed Price shall be readjusted effective immediately after such expiry time to the applicable Fixed Price which would then have been in effect upon the number of shares of Common Stock (or Derivative Securities) actually delivered upon the exercise of such rights, options or warrants. SECTION 11.4 SPECIAL DISTRIBUTION. If and whenever the Company shall issue or distribute to all or substantially all the holders of Common Stock: (i) shares of the Company of any class, other than Common Stock; (ii) rights, options or warrants; or (iii) any other assets (excluding cash dividends and equivalent dividends in shares paid in lieu of cash dividends in the ordinary course); and if such issuance or distribution does not constitute a Share Reorganization or a Rights Offering (any such event being herein called a "Special Distribution"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for purposes of the Special Distribution, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: (i) the numerator shall be the difference between: (A) the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date; and (B) the fair market value, as determined by the Directors (whose determination shall be conclusive), to the holders of Common Stock of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution (net of any consideration paid therefor by the holders of Common Stock), and 36 43 (ii) the denominator shall be the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date. SECTION 11.5 CAPITAL REORGANIZATION. If and whenever there shall occur: (i) a reclassification or redesignation of the shares of Common Stock or any change of the shares of Common Stock into other shares, other than in a Share Reorganization; (ii) a consolidation, merger or amalgamation of the Company with, or into another body corporate; or (iii) the transfer of all or substantially all of the assets of the Company to another body corporate; (any such event being herein called a "Capital Reorganization"), then in each such case the holder who exercises the right to convert Convertible Notes after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the exercise of such right, in lieu of the number of shares of Common Stock to which such holder was theretofore entitled upon the exercise of the conversion privilege, the aggregate number of shares or other securities or property of the Company or of the body corporate resulting from such Capital Reorganization that such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, such holders had been the holder of the number of shares of Common Stock to which such holder was theretofore entitled upon conversion; provided, however, that no such Capital Reorganization shall be consummated in effect unless all necessary steps shall have been taken so that such holders shall thereafter be entitled to receive such number of shares or other securities of the Company or of the body corporate resulting from such Capital Reorganization, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained above. SECTION 11.6 PURCHASE PRICE ADJUSTMENTS. In case at any time and from time to time the Company shall issue any shares of Common Stock or Derivative Securities convertible or exercisable for shares of Common Stock (the number of shares so issued, or issuable upon conversion or exercise of such Derivative Securities, as applicable, being referred to as "Additional Shares of Common Stock") for consideration less than the then Market Price at the date of issuance of such shares of Common Stock or such Derivative Securities, in each such case the Conversion Price shall, concurrently with such issuance, be adjusted by multiplying the Conversion Price immediately prior to such event by a fraction: (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of shares of Common Stock that the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued would purchase at the Market Price and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued or sold. 37 44 SECTION 11.7 ADJUSTMENT RULES. The following rules and procedures shall be applicable to adjustments made in this Article XI: (a) no adjustment in the applicable Fixed Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Fixed Price then in effect, provided, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) if any event occurs of the type contemplated by the adjustment provisions of this Article XI but not expressly provided for by such provisions, the Company will give notice of such event as provided herein, and the Company's board of directors will make an appropriate adjustment in the Fixed Price so that the rights of the holders of the applicable Security shall not be diminished by such event; and (c) if a dispute shall at any time arise with respect to any adjustment of the applicable Fixed Price, such dispute shall be conclusively determined by the auditors of the Company or, if they are unable or unwilling to act, by a firm of independent chartered accountants selected by the Directors and any such determination shall be binding upon the Company and Purchaser. SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT. The Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the applicable Fixed Price deliver to Purchaser a certificate specifying the nature of the event requiring the adjustment, the amount of the adjustment necessitated thereby, the applicable Fixed Price after giving effect to such adjustment and setting forth, in reasonable detail, the method of calculation and the facts upon which such calculation is based. SECTION 11.9 NOTICE TO NOTEHOLDERS. If the Company shall fix a record date for: (a) any Share Reorganization (other than the subdivision of outstanding Common Stock into a greater number of shares or the consolidation of outstanding Common Stock into a smaller number of shares), (b) any Rights Offering, (c) any Special Distribution, (d) any Capital Reorganization (other than a reclassification or redesignation of the Common Stock into other shares), (e) Sale Event; or (f) any cash dividend, 38 45 the Company shall, not less than 10 days prior to such record date or, if no record date is fixed, prior to the effective date of such event, give to Purchaser notice of the particulars of the proposed event or the extent that such particulars have been determined at the time of giving the notice. ARTICLE XII. EVENTS OF DEFAULT SECTION 12.1 EVENTS OF DEFAULT. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing: (a) failure by the Company to pay or repay when due, all or any part of the principal on any of the Convertible Notes (whether by virtue of the agreements specified in this Agreement or the Convertible Notes); (b) failure by the Company to pay (i) within five (5) Business Days of the due date thereof any interest on any Convertible Notes or (ii) within five (5) Business Days following the delivery of notice to the Company of any fees or any other amount payable (not otherwise referred to in (a) above or this clause (b)) by the Company under this Agreement or any other Transaction Agreement; (c) failure by the Company to timely comply with the requirements of Section 7.11 or 10.1 hereof, which failure is not cured within five (5) Business Days of such failure; (d) failure on the part of the Company to observe or perform any covenant contained in Section 7.10 or Article VIII of this Agreement; (e) failure on the part of the Company to observe or perform any covenant or agreement contained in any Transaction Agreement (other than those covered by clauses (a), (b), (c), (d) or (e) above) for 30 days from the date of such occurrence; (f) the trading in the Common Stock shall have been suspended by the Commission, OTC Bulletin Board or any National Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company and except if, at the time there is any suspension on any National Market, the Common Stock is then listed and approved for trading on another National Market within ten (10) Trading Days thereof); (g) failure of the Company to file the Listing Applications within twenty (20) Business Days of the Closing Date, which failure is not cured within five (5) Business Days of such failure; (h) the Company shall have its Common Stock delisted from the OTC Bulletin Board or a National Market for at least ten (10) consecutive Trading Days and is unable to obtain a listing on a National Market within such ten (10) Trading Days; 39 46 (i) the Registration Statement shall not have been declared effective by the Commission by the Required Effectiveness Date, or such effectiveness shall not be maintained for the Registration Maintenance Period, in each case which results in the Company incurring the Default Fee for a period in excess of 45 days; (j) the Company or any Subsidiary has commenced a voluntary case or other proceeding seeking liquidation, winding-up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or has consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or has made a general assignment for the benefit of creditors, or has failed generally to pay its debts as they become due, or has taken any corporate action to authorize any of the foregoing; (k) an involuntary case or other proceeding has been commenced against the Company or any Subsidiary seeking liquidation, winding-up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days, or an order for relief has been entered against the Company or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (l) default in any provision (including payment) or any agreement governing the terms of any Debt of the Company or any Subsidiary in excess of $1,000,000, which has not been cured within any applicable period of grace associated therewith; (m) judgments or orders for the payment of money which in the aggregate at any one time exceed $1,000,000 and are not covered by insurance have been rendered against the Company or any Subsidiary by a court of competent jurisdiction and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days; or (n) any representation, warranty, certification or statement made by the Company in any Transaction Agreement or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with any Transaction Agreement shall prove to have been untrue in any material respect when made. then, and in every such occurrence, Purchaser may, with respect to an Event of Default specified in paragraphs (a) or (b), and the Majority Holders may, with respect to any other Event of Default, by notice to the Company, declare the Convertible Notes to be, and the Convertible Notes shall thereon become immediately due and payable; provided that in the case of any of the Events of Default specified in paragraph (k) or (l) above with respect to the Company or any Subsidiary, then, without any notice to the Company or any other act by Purchaser, the entire amount of the Convertible Notes shall become immediately due and payable, provided, further, if any Event of Default has occurred 40 47 and is continuing, and irrespective of whether any Convertible Note has been declared immediately due and payable hereunder, any Purchaser of Convertible Notes may proceed to protect and enforce the rights of Purchaser by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Convertible Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise, and provided further, in the case of any Event of Default, the amount declared due and payable on the Convertible Notes shall be the Formula Price thereof. SECTION 12.2 POWERS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to Purchaser is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Convertible Notes or by law may be exercised from time to time, and as often as shall be deemed expedient, by Purchaser. ARTICLE XIII. MISCELLANEOUS SECTION 13.1 NOTICES. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified on the signature page hereof, (ii) if given by mail, four days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. SECTION 13.2 NO WAIVERS; AMENDMENTS. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (b) Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders; provided, that without the consent of each holder of any Convertible Note affected thereby, an amendment or waiver may not (a) reduce the aggregate principal amount of Convertible Notes whose holders must consent to an amendment or waiver, (b) reduce the rate or extend the time for payment of interest on any Convertible Note, (c) reduce the principal amount of or extend the stated maturity of any Convertible 41 48 Note or (d) make any Convertible Note payable in money or property other than as stated in such Convertible Note. In determining whether the holders of the requisite principal amount of Convertible Notes have concurred in any direction, consent, or waiver as provided in any Transaction Agreement, Convertible Notes which are owned by the Company or any other obligor on or guarantor of the convertible Notes, or by any Person Controlling, Controlled by, or under common Control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and provided further that no such amendment, supplement or waiver which affects the rights of Purchaser and their affiliates otherwise than solely in their capacities as holders of Convertible Notes shall be effective with respect to them without their prior written consent. SECTION 13.3 INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and each Person, if any, who controls Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (each, a "Controlling Person"), and the respective partners, agents, employees, officers and Directors of Purchaser, their Affiliates and any such Controlling Person (each an "Indemnified Party") and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, provided that the Company shall not be obligated to advance such costs to any Indemnified Party other than Purchaser unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding brought or threatened that relates to or arises out of, or is in connection with any activities contemplated by any Transaction Agreement or any other services rendered in connection herewith; provided that the Company will not be responsible for any claims, liabilities, losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to 42 49 any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by Purchaser. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of Purchaser and the other Indemnified Parties, satisfactory in form and substance to Purchaser, from all liability arising out of such action, claim, suit or proceeding. (c) If for any reason the foregoing indemnity is unavailable (otherwise than pursuant to the express terms of such indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying such Indemnified Party, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, labilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by Purchaser on the other from the transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Purchaser on the other, but also the relative fault of the Company and Purchaser as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 13.3, the aggregate contribution of all Indemnified Parties shall not exceed the amount of interest and fees actually received by Purchaser pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Company on the one hand and Purchaser on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 43 50 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) The indemnification, contribution and expense reimbursement obligations set forth in this Section 13.3 (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise; (ii) shall survive the termination of this Agreement and the other Transaction Agreements and the payment in full of the Convertible Notes and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Purchaser or any other Indemnified Party. SECTION 13.4 EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to Purchaser a fee of $15,000.00 (the "Expense Reimbursement Fee") in full satisfaction of all obligations of the Company to Purchaser and its agents in connection with the negotiation and preparation of the Transaction Agreements, relevant due diligence, and fees and disbursements of legal counsel. In addition, the Company agrees to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection with the execution and delivery of any Transaction Agreement or the issuance of the Securities to Purchaser, excluding their assigns. SECTION 13.5 PAYMENT. The Company agrees that, so long as Purchaser shall own any Convertible Notes purchased by it from the Company hereunder, the Company will make payments to Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (New York City time). SECTION 13.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and upon Purchaser and its respective successors and assigns; provided that the Company shall not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Majority Holders. All provisions hereunder purporting to give rights to Purchaser and its affiliates or to holders of Securities are for the express benefit of such Persons and their successors and assigns. SECTION 13.7 BROKERS. Except for a fee payable in the form of $67,500.00 in cash and a warrant (the "Warrant") for 60,000 shares of the Common Stock to LKB Financial, LLC, the Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company or Purchaser in connection with the sale of the Securities. SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH 44 51 PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY. SECTION 13.9 ENTIRE AGREEMENT. This Agreement, the Exhibits or Schedules hereto, which include, but are not limited to the Convertible Note, the Registration Rights Agreement and the Pledge Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Schedules to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. SECTION 13.10 SURVIVAL; SEVERABILITY. The representations, warranties, covenants and agreements of the parties hereto shall survive the Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. SECTION 13.11 TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Purchaser and the Company shall be required to employ any other reporting entity. SECTION 13.13 PUBLICITY. The Company and the Purchaser shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Purchaser without the prior written consent of Purchaser, except to the extent required by law, in which case the Company shall provide Purchaser with prior written notice of such public disclosure. 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. LAHAINA ACQUISITIONS, INC. By: /s/ GRAHAM M. COOPER ---------------------------------- Name: GRAHAM M. COOPER ---------------------------------- Title: PRESIDENT ---------------------------------- Address: P. O. BOX N8160 ---------------------------------- NASSAU ---------------------------------- BAHAMAS ---------------------------------- ---------------------------------- Fax: 242-322-6949 ---------------------------- Tel.: 242-322-2504 ---------------------------- GCA STRATEGIC INVESTMENT FUND LIMITED By: /s/ LEWIS N. LESTER --------------------------------- Name: Lewis N. Lester Title: Director Address: 106 Colony Park Drive Suite 900 Cumming, Georgia 30040 Fax: 678 947-6499 Tel.: 678 947-0028 Securities Purchase Agreement EX-2.4 5 CONVERTIBLE NOTE OF LAHAINA ACQUISITIONS INC 1 EXHIBIT 2.4 FORM OF CONVERTIBLE NOTE 2 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED. No. 1 $750,000 9% CONVERTIBLE NOTE of LAHAINA ACQUISITIONS, INC., a Colorado corporation (together with its successors, the "Company"), for value received hereby promises to pay to: GCA STRATEGIC INVESTMENT FUND LIMITED (The "Holder") and registered assigns, the principal sum of Seven Hundred Fifty Thousand ($750,000) or, if less, the principal amount of this Note then outstanding, on the Maturity Date by wire transfer of immediately available funds to the Holder in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, quarterly in arrears, on (i) the last day of March, June, September and December of each year until the Maturity Date, commencing December 31, 1999 (unless such day is not a Business Day, in which event on the next succeeding Business Day) (each an "Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as hereafter defined, and (iv) the date the principal amount of the Convertible Notes shall be declared to be or shall automatically become due and payable, on the principal sum hereof outstanding in like coin or currency, at the rates per annum set forth below, from the most recent Interest Payment Date to which interest has been paid on this Convertible Note, or if no interest has been paid on this Convertible Note, from the date of this Convertible Note until payment in full of the principal sum hereof has been made. The Maturity Date is January 31, 2001. 3 The interest rate shall be nine percent (9%) per annum (the "Interest Rate") or, if less, the maximum rate permitted by applicable law. Past due amounts (including interest, to the extent permitted by law) will also accrue interest at the Interest Rate plus 2% per annum or, if less, the maximum rate permitted by applicable law, and will be payable on demand ("Default Interest"). Interest on this Convertible Note will be calculated on the basis of a 360-day year of twelve 30 day months. All payments of principal and interest hereunder shall be made for the benefit of the Holder pursuant to the terms of the Agreement (hereafter defined). At the option of the Company, interest may be paid in cash or in shares of Common Stock. If the Company determines to pay interest in shares of Common Stock, it shall be required to notify the Holder of such election at least five (5) Business Days prior to the applicable Interest Payment Date. On each Conversion Date, interest shall be paid in shares of Common Stock on the portion of the principal balance of the Convertible Note then being converted. The number of shares of Common Stock issued as interest shall be determined by dividing the dollar amount of interest due on the applicable Interest Payment Date by the product of 9% multiplied by the Conversion Price then in effect. This Convertible Note (this "Convertible Note") is one of a duly authorized issuance of $750,000 aggregate principal amount of Convertible Notes of the Company referred to in that certain Securities Purchase Agreement dated as of the date hereof between the Company and the Purchasers named therein (the "Agreement"). The Agreement contains certain additional agreements among the parties with respect to the terms of this Convertible Note, including, without limitation, provisions which (A) limit the conversion rights of the Holder, (B) specify voluntary and mandatory repayment, prepayment and redemption rights and obligations and (C) specify Events of Default following which the remaining balance due and owing hereunder may be accelerated. All such provisions are an integral part of this Convertible Note and are incorporated herein by reference. This Convertible Note is transferable and assignable to one or more Persons, in accordance with the limitations set forth in the Agreement. The Company shall keep a register (the "Register") in which shall be entered the names and addresses of the registered holder of this Convertible Note and particulars of this Convertible Note held by such holder and of all transfers of this Convertible Note. References to the Holder or "Holders" shall mean the Person listed in the Register as registered holder of such Convertible Notes. The ownership of this Convertible Note shall be proven by the Register. 1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not otherwise defined herein shall have for purposes hereof the meanings provided for in the Agreement. 2. COVENANTS. Unless the Majority Holders otherwise consent in writing, the Company covenants and agrees to observe and perform each of its covenants, obligations and undertakings contained in the Agreement, which obligations and undertakings are expressly assumed herein by the Company and made for the benefit of the holder hereof. 2 4 3. PAYMENT OF PRINCIPAL. The Company shall repay the remaining unpaid balance of this Convertible Note on the Maturity Date. The Company may, and shall be obligated to, prepay all or a portion of this Convertible Note on the terms specified in the Agreement. 4. CONVERSION. 4.1 CONVERSION OF CONVERTIBLE NOTE. Subject to Section 5 hereof, the Holder shall have the right, at its option, at any time from and after the date of issuance of this Convertible Note, convert the principal amount of this Convertible Note, or any portion of such principal amount, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) determined pursuant to this Section 4.1. The number of shares of Common Stock to be issued upon each conversion of this Convertible Note shall be determined by dividing the Conversion Amount (as defined below) by the Conversion Price in effect on the date (the "Conversion Date") a Notice of Conversion is delivered to the Company by the Holder by facsimile or other reasonable means of communication dispatched prior to 5:00 p.m., New York City Time. The term "Conversion Amount" means, with respect to any conversion of this Convertible Note, the sum of (1) the principal amount of this Convertible Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Convertible Note to the Conversion Date plus (3) Default Interest, if any, on the interest referred to in the immediately preceding clause (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Section 4.3 hereof, Section 10.1 of the Agreement or Section 10.4 of the Agreement. 4.2 CONVERSION PRICE. Up to 50% of the outstanding principal amount of this Convertible Note shall be converted into a number of shares of Common Stock at a conversion price (the "Conversion Price") equal to the lesser of (i) the average bid price of the Common Stock for the twenty (20) Trading Days prior to the Closing Date, not including the Closing Date, and (ii) based on a formula F/P, where F = the principal amount of the Convertible Note being converted plus accrued and unpaid interest thereon through the date of conversion plus Default Interest, if any, on such interest, and P = the product of 85% multiplied by the average of the five (5) consecutive DWASP for the Common Stock for the five (5) Trading Days ending on the day prior to the Conversion Date ("Floating Conversion Price") (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events as contemplated by Article XI of the Agreement). The remaining 50% of the outstanding principal amount is convertible based on the formula set forth in Section 4.2(ii) herein. The term "DWASP" means, for any security as of any date, the daily-weighted average sales price on the Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the principal trading market for such security, the daily-weighted average sales price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the daily-weighted average sales price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no daily- 3 5 weighted average sales price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the DWASP cannot be calculated for such security on such date on any of the foregoing bases, the DWASP of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of a majority in interest of Convertible Notes being converted for which the calculation of the closing bid price is required in order to determine the Conversion Price of such Convertible Notes. 4.3 AUTHORIZED SHARES. (a) Consistent with Section 7.11 of the Agreement, the Company (i) shall promptly irrevocably instruct its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Convertible Note and (ii) agrees that its issuance of this Convertible Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Convertible Note. (b) If at any time a Holder of this Convertible Note submits a Notice of Conversion (x) the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in full in accordance with the provisions of this Article 4 or (y) the Company is prohibited by the applicable rules of the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time to effect such conversion in full as provided in subsection (d) below, without stockholder approval (each, a "Conversion Default"), the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Convertible Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company, or its stockholders, as applicable, at which time the Conversion Price in respect thereof shall be the lower of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. The Company shall pay to the Holder payments ("Conversion Default Payments") for a Conversion Default in the amount of (N/365) x .24 x the Excess Amount on the Conversion Date in respect of the Conversion Default (the "Conversion Default Date"), where N = the number of days from the Conversion Default Date to the date (the "Authorization Date") that the Company, or its stockholders, as applicable, authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Convertible Note. The Company shall use its best efforts to authorize, or cause its stockholders to authorize within 90 days of the 4 6 occurrence of a Conversion Default, as applicable, a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Company or that the Company otherwise becomes aware that there are or likely will be insufficient shares to allow full conversion thereof and (ii) a Conversion Default. The Company shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the Market Price, at the Holder's option, as follows: (i) In the event the Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth Business Day of the month following the month in which it has accrued; and (ii) In the event the Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth Business Day of the month following the month in which it has accrued (at such time as there are sufficient authorized shares of Common Stock) in accordance with the terms of this Article 4. (c) The Holder's election pursuant to this Section 4.3 shall be made in writing to the Company at any time prior to 5:00 p.m., New York City Time, on the third Business Day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holders right to pursue actual damages (to the extent in excess of the Conversion Default Payments) due to the Company's failure to maintain a sufficient number of authorized shares of Common Stock. (d) In no event shall the Company issue more than the Maximum Number of Shares upon conversion of this Convertible Note, unless the Company shall have obtained approval by the stockholders of the Company ("Stockholder Approval") or a waiver of such requirement by the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time. Once the Maximum Number of Shares has been issued (the date of which is hereinafter referred to as the "Maximum Conversion Date"), unless the Company shall have obtained Stockholder Approval or a waiver of such requirement by the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time within 90 days of the Maximum Conversion Date, the Company shall pay to the Holder within five (5) Business Days of the Maximum Conversion Date (or, if the Company is, in good faith, using its best efforts to obtain Stockholder Approval, then the earlier of (x) 90 days following the Maximum Conversion Date, and (y) such date that it becomes reasonably apparent that Stockholder Approval will 5 7 not be obtained within such 90 days period), the Formula Price plus accrued and unpaid Default Interest, if any. The Maximum Number of Shares shall be subject to adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof as contemplated by Article XI of the Agreement. With respect to each Holder of Convertible Notes, the Maximum Number of Shares shall refer to such Holder's pro rata share thereof based upon the aggregate principal balance of the Convertible Notes then outstanding. In the event that the Company obtains Stockholder Approval, approval of the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time, or otherwise is able to increase the number of shares to be issued above the Maximum Number of Shares (such increased number being the "New Maximum Number of Shares"), the references to Maximum Number of Shares above shall be deemed to be, instead, references to the New Maximum Number of Shares. 4.4 METHOD OF CONVERSION. (a) Notwithstanding anything to the contrary set forth herein, upon conversion of this Convertible Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Convertible Note to the Company unless the entire unpaid principal amount of this Convertible Note is so converted. Rather, records showing the principal amount converted (or otherwise repaid) and the date of such conversion or repayment shall be maintained on a ledger substantially in the form of Annex A attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Conversion). It is specifically contemplated that the Holder hereof shall act as the calculation agent for conversions and repayments. In the event of any dispute or discrepancies, such records maintained by the Holder shall be controlling and determinative in the absence of manifest error or failure of Holder to record the principal amount converted (or otherwise repaid) from time to time, in which events the record of the Company shall be controlling and determinative. The Holder and any assignee, by acceptance of this Convertible Note, acknowledge and agree that, by reason of the provisions of this paragraph, following a conversion of a portion of this Convertible Note, the principal amount represented by this Convertible Note will be the amount indicated on Annex A attached hereto (which may be less than the amount stated on the face hereof). (b) The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of this Convertible Note in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. 6 8 (c) Subject to Section 5 hereof, upon receipt by the Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Convertible Note shall be deemed reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article 4, all rights with respect to the portion of this Convertible Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. Subject to Section 5 hereof, if the Holder shall have given a Notice of Conversion as provided herein, the Company's obligation to issue and deliver the certificates for shares of Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provisions thereof, the recovery of any judgment against any person or any action by the Holder to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and subject to Section 4.4(a) irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion. The date of receipt (including receipt via telecopy) of such Notice of Conversion shall be the Conversion Date so long as it is received before 5:00 p.m., New York City Time, on such date. (d) Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the expiration of the Deadline with respect to a conversion of any portion of this Convertible Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Company), the Holder shall regain the rights of a Holder of this Convertible Note with respect to such unconverted portions of this Convertible Note and the Company shall, as soon as practicable, return such unconverted Convertible Note to the holder or, if the Convertible Note has not been surrendered, adjust its records to reflect that such portion of this Convertible Note not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 4.3 for the Company's failure to convert this Convertible Note. (e) In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Holder and its compliance with the provisions contained in Section 4.1 and in this Section 4.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by 7 9 crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission System. 5. REDEMPTION BY COMPANY. 5.1 COMPANY'S RIGHT TO REDEEM. The Company shall have the right, in its sole discretion, upon receipt of a Notice of Conversion at any time after at least $375,000 of this Convertible Note has been converted, to redeem in whole or in part, the remaining unpaid principal amount of this Convertible Note, for cash at a redemption price of 117.5% of the unpaid principal amount plus accrued but unpaid interest as of the date of redemption. 5.2 MECHANICS OF REDEMPTION. The Company shall effect each such redemption by giving notice of its election to redeem, by facsimile within 2 business days following receipt of a Notice of Conversion, with a copy by either overnight or 2-day courier, with a copy by U.S. Air Mail to the Holder of this Convertible Note to be redeemed at the address and facsimile number of such Holder appearing in the Company's register for the Convertible Notes. Such redemption notice shall indicate whether the Company will redeem all or part of such portion of the Convertible Note to be redeemed and the applicable redemption price. The Company shall not be entitled to send any notice of redemption and begin the redemption procedure unless it has (i) the full amount of the redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (ii) immediately available credit facilities, in the full amount of the redemption price, with a bank or similar financial institution on the date the redemption notice is sent to the Holders of this Convertible Note. 5.3 REDEMPTION PRICE. The redemption price shall be paid to the Holder of this Convertible Note within 21 business days of the delivery of the notice of such redemption to such Holder. 6. HOLDER'S RIGHT TO ADVANCE NOTICE OF ELECTION REDEEM. 6.1 HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION BY COMPANY. The Holder of this Convertible Note shall have the right to require Company to provide advance notice stating whether the Company will elect to redeem all or part of the redeemable portion in cash, pursuant to the Company's redemption rights discussed in Section 5.1 above. 6.2 MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall give notice to the Company by facsimile (the "Election Notice"), requiring that the Company disclose whether the Company would elect to redeem the redeemable portion of this Convertible Note (in whole or in part) if the Holder were to provide a Notice of Conversion and sought to convert the Convertible Note in such principal amount as is specified in the Notice of Election. 8 10 6.3 COMPANY'S RESPONSE. Company must respond, disclosing its election, within two (2) business days of receipt of Holder's Election Notice via facsimile. If Company does not respond to Holder within two (2) business days (by 12:00 noon, if required above) via facsimile, Company shall be deemed to have forfeited its right to exercise redemption pursuant to Section 5(a) upon its receipt of (but only with respect to) that Notice of Conversion. 7. MISCELLANEOUS. This Convertible Note shall be deemed to be a contract made under the laws of the State of Georgia, and for all purposes shall be governed by and construed in accordance with the laws of said State. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Convertible Note, except as specifically provided herein, and asset to extensions of the time of payment, or forbearance or other indulgence without notice. The Company hereby submits to the exclusive jurisdiction of the United States District Court for the Northern District of Georgia and of any Georgia state court sitting in Atlanta, Georgia for purposes of all legal proceedings arising out of or relating to this Convertible Note. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Company hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Convertible Note. The Holder of this Convertible Note by acceptance of this Convertible Note agrees to be bound by the provisions of this Convertible Note which are expressly binding on such Holder. [SIGNATURE PAGE FOLLOWS] 9 11 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: December 4th, 1998 LAHAINA ACQUISITIONS, INC. By: /s/ GRAHAM M. COOPER ----------------------- Name: GRAHAM M. COOPER --------------------- Title: PRESIDENT -------------------- 12 ANNEX A CONVERSION AND REPAYMENT LEDGER
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13 FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES: NAME: ADDRESS: TEL NO: FAX NO: CONTACT NAME: DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME): NAME: ADDRESS: TEL NO: FAX NO: CONTACT NAME: SPECIAL INSTRUCTIONS: ----------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 14 NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Convertible Note) The undersigned hereby irrevocably elects to convert $________ of the principal balance of the Convertible Note into shares of Common Stock, no par value per share (the "Common Stock"), of Lahaina Acquisitions, Inc. (the "Company") according to the conditions hereof, as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. The undersigned, as contemplated by Section 5.1 of the Securities Purchase Agreement pursuant to which the Convertible Note was issued, hereby states that the representations and warranties of the undersigned set forth therein are true and correct in all material respects as of the date hereof (provided, the undersigned makes no representations concerning its investment intent with respect to the Common Stock received upon this conversion). Conversion calculations: -------------------------------------------- Date of Conversion -------------------------------------------- Applicable Conversion Price -------------------------------------------- Number of Shares -------------------------------------------- Name/Signature Address: -------------------------------------------- -------------------------------------------- EX-2.5 6 REGISTRATION RIGHTS AGREEMENT DATED 12/7/98 1 EXHIBIT 2.5 REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 7, 1998 BY AND BETWEEN LAHAINA ACQUISITIONS, INC. AND GCA STRATEGIC INVESTMENT FUND LIMITED iii 2 TABLE OF CONTENTS 1. INTRODUCTION.............................................................................................2 1.1 SECURITIES PURCHASE AGREEMENT...................................................................2 1.2 DEFINITION OF SECURITIES........................................................................2 1.3 NATIONAL MARKET REPRESENTATION..................................................................2 2. REGISTRATION UNDER SECURITIES ACT, ETC...................................................................2 2.1 MANDATORY REGISTRATION..........................................................................2 (A) REGISTRATION OF REGISTRABLE SECURITIES.................................................2 (B) REGISTRATION STATEMENT FORM............................................................2 (C) EXPENSES...............................................................................2 (D) EFFECTIVE REGISTRATION STATEMENT.......................................................2 (E) PLAN OF DISTRIBUTION...................................................................2 2.2 INCIDENTAL REGISTRATION.........................................................................2 (A) RIGHT TO INCLUDE REGISTRABLE SECURITIES................................................2 (B) PRIORITY IN INCIDENTAL REGISTRATIONS...................................................3 2.3 REGISTRATION PROCEDURES.........................................................................3 2.4 UNDERWRITTEN OFFERINGS..........................................................................7 (A) INCIDENTAL UNDERWRITTEN OFFERINGS......................................................7 (B) HOLDBACK AGREEMENTS....................................................................7 (C) PARTICIPATION IN UNDERWRITTEN OFFERINGS................................................7 2.5 PREPARATION; REASONABLE INVESTIGATION...........................................................7 2.6 REGISTRATION DEFAULT FEE........................................................................8 2.7 INDEMNIFICATION.................................................................................8 (A) INDEMNIFICATION BY THE COMPANY.........................................................8 (B) INDEMNIFICATION BY THE SELLERS.........................................................9 (C) NOTICES OF CLAIMS, ETC.................................................................9 (D) OTHER INDEMNIFICATION.................................................................10 (E) INDEMNIFICATION PAYMENTS..............................................................10 (F) CONTRIBUTION..........................................................................10 3. DEFINITIONS.............................................................................................11 4. RULE 144................................................................................................13 5. AMENDMENTS AND WAIVERS..................................................................................13 6. NOMINEES FOR BENEFICIAL OWNERS..........................................................................13 7. NOTICES.................................................................................................13 8. ASSIGNMENT..............................................................................................14 9. DESCRIPTIVE HEADINGS....................................................................................14
i 3 10. GOVERNING LAW...........................................................................................14 11. COUNTERPARTS............................................................................................14 12. ENTIRE AGREEMENT........................................................................................14 13. SEVERABILITY............................................................................................14
ii 4 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 7, 1998, between Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), and GCA Strategic Investment Fund Limited (the "Fund"). 1. INTRODUCTION. 1.1 SECURITIES PURCHASE AGREEMENT The Company and the Fund has today executed that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), pursuant to which the Company has agreed, among other things, to issue an aggregate of Seven Hundred Fifty Thousand Dollars ($750,000.00) (U.S.) principal amount of 9% Convertible Notes of the Company (the "Notes") to the Fund or its successors, assigns or transferees (collectively, the "Holders"). The Notes are convertible into an indeterminable number of shares (the "Note Conversion Shares") of the Company's common stock, no par value per share (the "Common Stock") pursuant to the terms of the Notes. The number of Note Conversion Shares is subject to adjustment upon the occurrence of stock splits, recapitalizations and similar events occurring after the date hereof. 1.2 DEFINITION OF SECURITIES. The Note Conversion Shares are herein referred to as the "Securities." 1.3 NATIONAL MARKET REPRESENTATION. The Company represents and warrants that the Company's Common Stock is currently eligible for trading on the over-the-counter Bulletin Board operated by the National Association of Securities Dealers, Inc. (the "OTC Bulletin Board") under the symbol "LAHA." Certain capitalized terms used in this Agreement are defined in Section 3 hereof; references to sections shall be to sections of this Agreement. 2. REGISTRATION UNDER SECURITIES ACT, ETC. 2.1 MANDATORY REGISTRATION. (A) REGISTRATION OF REGISTRABLE SECURITIES. On or before December 30, 1998, the Company shall prepare and file a registration statement on Form S-1 to effect the registration under the Securities Act of all, but not less than all, of the Registrable Securities which relate (or, because of the indeterminable number thereof, which could reasonably be deemed to relate) to the Securities; all to the extent requisite to permit the public disposition of such Registrable Securities so to be registered. The Company shall us its best efforts to cause the Registration Statement which is the subject of this Section 2.1(a) (the "Registration Statement") to be declared effective by the Commission no later than February 12, 1999 (the "Required Effectiveness Date"). Nothing contained herein shall be deemed to limit the number of Registrable Securities to be registered by the Company hereunder. As a result, should the Registration Statement not relate to the maximum number of Registrable Securities acquired by (or potentially acquirable by) the holders thereof upon conversion of the Notes, or exercise of the Common Stock Purchase Warrants described in Section 1 above, the Company shall be required to promptly file a separate registration 5 statement (utilizing Rule 462 promulgated under the Exchange Act, where applicable) relating to such Registrable Securities which then remain unregistered. The provisions of this Agreement shall relate to such separate registration statement as if it were an amendment to the Registration Statement. (B) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1 shall be on Form S-1 or such other appropriate registration form of the Commission as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified by the Fund; provided, however, such intended method of deposition shall not include an underwritten offering of the Registrable Securities. (C) EXPENSES. The Company will pay all Registration Expenses in connection with any registration required by this Section 2.1. (D) EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective within the time period specified herein, provided that a registration which does not become effective after the Company filed a registration statement with respect thereto solely by reason of the refusal to proceed of any holder of Registrable Securities (other than a refusal to proceed based upon the advice of counsel in the form of a letter signed by such counsel and provided to the Company relating to a disclosure matter unrelated to such holder) shall be deemed to have been effected by the Company unless the holders of the Registrable Securities shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or extraordinary requirement of the Commission or other governmental agency or court for any reason or (iii) if, after it has become effective, such registration ceases to be effective for more than an aggregate of ninety (90) days. (E) PLAN OF DISTRIBUTION. The Company hereby agrees that the Registration Statement shall include a plan of distribution section reasonably acceptable to the Fund and substantially in the form annexed hereto; provided, however, such plan of distribution section shall be modified by the Company so as to not provide for the disposition of the Registrable Securities on the basis of an underwritten offering. 2.2 INCIDENTAL REGISTRATION. (A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after the date hereof but before the third anniversary of the date hereof, the Company proposes to register any of its securities under the Securities Act (other than by a registration in connection with an acquisition in a manner which would not permit registration of Registrable Securities for sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or any successor form thereto and other than pursuant to Section 2.1), on an underwritten basis (either best-efforts or firm-commitment), then, the Company will each such time give prompt written notice to all Holders of its intention to do so and of such Holders' rights under this Section 2.2. Upon the written request of any such Holder made within twenty (20) days after the receipt of any such notice (which request shall specify the 2 6 Registrable Securities intended to be disposed of by such Holder an and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, use its commercially reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of such Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of this obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. The right provided the Holders of the Registrable Securities pursuant to this Section shall be exercisable at their sole discretion and will in no way limit any of the Company's obligations to pay the Securities according to their terms. (B) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing underwriter of the underwritten offering contemplated by this Section 2.2 shall inform the Company and holders of the Registrable Securities requesting such registration by letter of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first securities proposed by the Company to be sold for its own account, and (iii) second Registrable Securities and securities of other selling security holders requested to be included in such registration pro rata on the basis of the number of shares of such securities so proposed to be sold and so requested to be included; provided, however, the holders of Registrable Securities shall have priority to all shares sought to be included by officers and directors of the Company as well as holders of ten percent (10%) or more of the Company's Common Stock. 2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission the Registration Statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use its commercially reasonable best efforts to cause such registration statement to be declared effective by 3 7 the Commission, as soon as practicable, but in any event no later than the Required Effectiveness Date (with respect to a registration pursuant to Section 2.1); provided, however, that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to be included in such registration, copies of all such documents proposed to be filed; (ii) with respect to any Registration Statement pursuant to Section 2.1, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier to occur of six (6) years after the date of this Agreement(subject to the right of the Company to suspend the effectiveness thereof for not more than 10 consecutive days or an aggregate of 30 days in such six (6) years period) or such time as all of the securities which are the subject of such registration statement cease to be Registrable Securities (such period, in each case, the "Registration Maintenance Period"); (iii) furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (iv) use its commercially reasonable best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws as any seller thereof shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (v) use its commercially reasonable best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller, and the underwriters, if any, of: 4 8 (A) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement),reasonably satisfactory in form and substance to such seller) including that the prospectus and any prospectus supplement forming a part of the Registration Statement does not contain an untrue statement of a material fact or omits a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (B) a "comfort" letter (or, in the case of any Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter), dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter of like kind dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statement included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35) and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as such seller (or the underwriters, if any) may reasonably request; (vii) notify the Sellers' Representative and its counsel promptly and confirm such advice in writing promptly after the Company has knowledge thereof: (A) when the Registration Statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective; (B) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus or for additional information; (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings by an Person for that purpose; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (viii) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the 5 9 prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material facts required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (ix) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (x) otherwise use its commercially reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) enter into such agreements and take such other actions as the Sellers' Representative shall reasonably request in writing (at the expense of the requesting or benefiting sellers) in order to expedite or facilitate the disposition of such Registrable Securities; and (xii) use its commercially reasonable best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement pursuant to Section 2.1, or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the Registration Statement) to which the Sellers' Representative shall reasonably object, provided that the Company may file such documents in a form required by law or upon the advice of its counsel. The Company represents and warrants to each holder of Registrable Securities that it has obtained all necessary waivers, consents and authorizations necessary to execute this Agreement and consummate the transactions contemplated hereby other than such waivers, consents and/or authorizations specifically contemplated by the Securities Purchase Agreement. Each Fund agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (viii) of this Section 2.3, such Fund will forthwith discontinue such Fund's disposition of Registrable Securities pursuant to the Registration Statement 6 10 relating to such Registrable Securities until such Fund's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Fund's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. 2.4 UNDERWRITTEN OFFERINGS. (A) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any holder of Registrable Securities as provided in Section 2.2 and subject to the provisions of Section 2.2(a), use its commercially reasonable best efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters. (B) HOLDBACK AGREEMENTS. Subject to such other reasonable requirements as may be imposed by the underwriter as a condition of inclusion of a Fund's Registrable Securities in the registration statement, each Fund agrees by acquisition of Registrable Securities, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of, except as part of such underwritten registration, any equity securities of the Company, during such reasonable period of time requested by the underwriter; provided however, such period shall not exceed the 120 day period commencing 30 days prior to the commencement of such underwritten offering and ending 90 days following the completion of such underwritten offering. (C) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of Registrable Securities may participate in any underwritten offering under Section 2.2 unless such holder of Registrable Securities (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the holders of a majority of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require any holder of Registrable Securities to make an representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in the related registration statement or representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. 2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, and their respective counsel and accountants, the opportunity to participate in the preparation of such 7 11 registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 REGISTRATION DEFAULT FEE. If the Registration Statement contemplated in Section 2.1 is (x) not declared effective by the Required Effectiveness Date or (y) such effectiveness is not maintained for the Registration Maintenance Period, then the Company shall pay to the Fund the Default Fee specified in Section 10.4 of the Securities Purchase Agreement. 2.7 INDEMNIFICATION. (A) INDEMNIFICATION BY THE COMPANY. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does agree to indemnify and hold harmless the holder of any Registrable Securities covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such holder or any such underwriter within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability, (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person 8 12 if such statement or omission was corrected in such final prospectus or an amendment or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. (B) INDEMNIFICATION BY THE SELLERS. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to this Agreement, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.7) the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (C) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. 9 13 (D) OTHER INDEMNIFICATION. Indemnification similar to that specified in the preceding subdivisions of this Section 2.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities (but only if and to the extent required pursuant to the terms of Section 2.7(b)) with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (E) INDEMNIFICATION PAYMENTS. The indemnification required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (F) CONTRIBUTION. If the indemnification provided for in the preceding subdivision of this Section 2.7 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the purchasers bear to the gain, if any, realized by all selling holders participating in such offering or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.7, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (b) of this Section 2.7 had been available under the circumstances. 10 14 The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if the holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 2.7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or allege untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 3. DEFINITIONS. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Agreement": As defined in Section 1. "Commission": The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Common Stock": As defined in Section 1. "Company": As defined in the introductory paragraph of this Agreement. "Conversion Shares": As defined in Section 1. "Exchange Act": The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Notes": As defined in Section 1, such term to include any securities issued in substitution of or in addition to such Notes. "OTC Bulletin Board": As defined in Section 1. "Person": A corporation, association, partnership, organization, business, individual, governmental or political subdivision thereof or a governmental agency. 11 15 "Registrable Securities": The Securities and any securities issued or issuable with respect to such Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (d) they shall have ceased to be outstanding, (e) on the expiration of the applicable Registration Maintenance Period or (f) any and all legends restricting transfer thereof have been removed in accordance with the provisions of Rule 144(k) (or any successor provision) under the Securities Act. "Registration Expenses": All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration, filing and NASD fees, all stock exchange and OTC Bulletin Board or other NASD or stock exchange listing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of not more than one law firm (not to exceed $25,000) retained by the holder or holders of more than 50% of the Registrable Securities, premiums and other costs of policies of insurance of the Company against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "Registration Maintenance Period": As defined in Section 2.3. "Required Effectiveness Date": As defined in Section 2.1. "Securities Act": The Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Securities Purchase Agreement": As defined in Section 1. 12 16 "Sellers' Representative": Global Capital Advisors Ltd. or such Person designated by Global Capital Advisors Ltd. as of the time of disposition of the last of the Notes held by the Fund (or subsequent Sellers' Representative). 4. RULE 144. The Company shall timely file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any holder of Registrable Securities, make publicly available other information) and will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with the requirements of this Section 4. 5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of the sum of the 51% or more of the shares of (i) Registrable Securities issued at such time, plus (ii) Registrable Securities issuable upon exercise or conversion of the Securities then constituting derivative securities (if such Securities were not fully exchanged or converted in full as of the date such consent if sought). Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number of percentage of shares of Registrable Securities held by an holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership or such Registrable Securities. 7. NOTICES. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of a party hereto other than the Company, addressed to such party in the manner set forth in the Securities Purchase Agreement or at such other address as such party shall have furnished to the Company in writing, or (b) in the case of any other holder of Registrable Securities, at the address that such holder shall have furnished to the Company in writing, or, until 13 17 any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Registrable Securities who has furnished an address to the Company, or (c) in the case of the Company, at the address set forth on the signature page hereto, to the attention of its President, or at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder of Registrable Securities at the time outstanding. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by fax or air courier), when delivered at the address specified above, provided that any such notice, request or communication shall not be effective until received. 8. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Securities. Each of the Holders of the Registrable Securities agrees, by accepting any portion of the Registrable Securities after the date hereof, to the provisions of this Agreement including, without limitation, appointment of the Sellers' Representative to act on behalf of such Holder pursuant to the terms hereof which such actions shall be made in the good faith discretion of the Sellers' Representative and be binding on all persons for all purposes. 9. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF GEORGIA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. 11. COUNTERPARTS. This Agreement may be executed by facsimile and may be signed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13. SEVERABILITY. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 14 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. LAHAINA ACQUISITIONS, INC. By: /s/ Graham M. Cooper ---------------------------------- Name: Graham M. Cooper -------------------------------- Title: President ------------------------------- Address: P.O. Box N 8160 ----------------------------- Nassau, Bahamas ----------------------------- Fax: (242) 322-6949 ------------------------- Tel.: (242) 322-2504 ------------------------ GCA STRATEGIC INVESTMENT FUND LIMITED By: /s/ Lewis N. Lester ----------------------------- Name: Lewis N. Lester Title: Director Address: 106 Colony Park Drive Suite 900 Cumming, Georgia 30040 Fax: 678 947-6499 Tel.: 678 947-0028 Registration Rights Agreement 19 CERTIFICATE OF MONGOOSE INVESTMENTS, LCC GCA Strategies Investment Fund, Limited 106 Colony Park Drive Suite 900 Cumming, GA 30040 This Certificate is executed and delivered by Mongoose Investments, LLC ("Mongoose") in connection with the Securities Purchase Agreement ("the Agreement") dated as of December 7, 1998 between Lahaina Acquisitions, Inc. ("Lahaina") and GCA Strategies Investment Fund, Limited ("GCA Fund") and the Convertible Notes, Registration Rights Agreement and Warrant as defined in the Agreement, and the Stock Purchase Agreement dated as of December 7, 1998 between Lahaina and Mongoose. In connection with the transaction contemplated by the Agreement, Mongoose is acquiring 1,910,000 shares of the no par value per share Series A Preferred Stock of Lahaina. The terms of the Preferred Stock are attached here as Exhibit A. This Certificate is to confirm that so long as the Convertible Notes, Registration Rights Agreement and Warrant are outstanding, Mongoose will not enforce any term of the Series A Preferred Stock which is inconsistent with the obligations of Lahaina under the Convertible Notes, the Registration Rights Agreement or the Warrant without the prior written consent of GCA Fund or any successor holder of the Convertible Notes or Warrant, respectively. This ____ day of December, 1998. MONGOOSE INVESTMENTS, LLC By: /s/ Richard P. Smyth ----------------------------------- Richard P. Smyth Title: Managing Member -------------------------------- 20 FORM OF REGISTRATION RIGHTS AGREEMENT EX-2.6 7 COMMON STOCK PURCHASE WARRANT EXPIRING 12/20/2003 1 THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY. --------------------------------------- COMMON STOCK PURCHASE WARRANT No. 1 Number of shares: 60,000 Holder: LKB Financial, LLC Purchase Price: $0.91875 per share Expiration Date: December 20, 2003 For identification only. The governing terms of this Warrant are set forth below. Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby certifies that, for value received, LKB Financial, LLC, or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, sixty thousand (60,000) shares of the fully paid and nonassessable shares of Common Stock of the Company. The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall initially be $0.91875 provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. 2 Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Lahaina Acquisitions, Inc. and any corporation that shall succeed or assume the obligations of such corporation hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, no par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the Holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the Holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant. 1.1 Method of Exercise. (a) This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for which this Warrant is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, (ii) by wire transfer to the account of the Company, (iii) in shares of Common Stock having a Market Value on the Exercise Date (as hereinafter defined) equal to the aggregate Exercise Price or (iv) by presentation and surrender of this Warrant to the Company for cashless exercise (a "Cashless Exercise"), which such surrender being deemed a waiver of the Holder's obligation to pay all or any portion of the Exercise Price. In the event the Holder elects a Cashless Exercise (which such election shall be irrevocable) the Holder shall exchange this Warrant for that number of shares of Common Stock determined 2 3 by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the difference between the then current Market Value of the Common Stock and the Purchase Price, and the denominator of which shall be the then current Market Value of the Common Stock. If the amount of the payment received by the Company is less than the Exercise Price, the Holder will be notified of the deficiency and shall make payment in that amount within five (5) business days. In the event the payment exceeds the Exercise Price, the Company will promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). (b) Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warrant will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the face hereof). 1.2 Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefor. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. 1.3 Company Acknowledgment. The Company will, at the time of the exercise of this Warrant, upon request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder the registration rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of a Registration Rights Agreement dated the 3 4 date hereof (the "Registration Rights Agreement"). If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford such Holder any such rights. 1.4 Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 6.2 of the Purchase Agreement. 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants 4 5 of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the Holders of any class or securities for the purpose of determining the Holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding- up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, 5 6 dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. (a) On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. (b) Upon written notice from the Purchasers pursuant to Section 2.5(b)(iii) of the Purchase Agreement that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and on surrender for amendment and restatement of this Warrant, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc.. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. 6 7 (b) any person in possession of this Warrant properly endorsed and the prior holder is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. 12. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant in accordance with the terms of the Registration Rights Agreement. 13. Notices, etc.. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Georgia. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [SIGNATURE PAGE FOLLOWS] 7 8 DATED as of December 4th, 1998. LAHAINA ACQUISITIONS, INC. By: /s/ Graham M. Cooper ------------------------------------- Name: GRAHAM M. COOPER ------------------------------------- Title: President ------------------------------------- Common Stock Purchase Warrant 9 EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To Lahaina Acquisitions, Inc. The undersigned registered Holder of the accompanying Warrant, hereby exercises such Warrant or portion thereof for, and purchases thereunder, __________(1) shares of Common Stock (as defined in such Warrant) and herewith makes payment therefor in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, LKB Financial, LLC whose address is _______________________. The Exercise Price is paid as follows: [_] Bank draft payable to the Company in the amount of $_____________. [_] Wire transfer to the account of the Company in the amount of $___________. [_] Delivery of __________________ previously held shares of Common Stock having an aggregate Market Price of $_____________. [_] Cashless exercise. Surrender of ___________ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the Warrant, as provided in Section 1.1(iv) thereto. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date: ------------------------- ---------------------------------------- (Name must conform to name of Holder as specified on the face of the Warrant) By: -------------------------------------- Name: --------------------------------- Title: -------------------------------- Address of Holder: ----------------------- ----------------------- ----------------------- Date of exercise: ---------------- - --------------------- (1) Insert the number of shares of Common Stock as to which the accompanying Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of the accompanying Warrant, to the Holder surrendering the same. 10 ANNEX B WARRANT EXERCISE LEDGER
ORIGINAL NUMBER WARRANTS EXERCISE PRICE NEW BALANCE ISSUER HOLDER DATE OF WARRANTS EXERCISED PAID OF WARRANTS INITIALS INITIALS - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
EX-2.7 8 STOCK PLEDGE AGREEMENT DATED 12/7/98 1 STOCK PLEDGE AGREEMENT THIS IS A STOCK PLEDGE AGREEMENT (this "Agreement") by and between Mongoose Investments, LLC (the "Pledgor") and GCA Strategic Investment Fund Limited (the "Pledgee"), and dated effective as of December 7, 1998, and by which the parties to this Agreement, for good and valuable consideration, hereby agree as follows: 1. Background Information. The Pledgor is the owner of the shares of stock described in Schedule I attached hereto and incorporated herein by reference (the "Pledged Shares"). The Pledgor is the majority shareholder of Lahaina Acquisitions, Inc. ("Lahaina") which has delivered Pledgee a convertible note of even date herewith in the principal amount of $750,000.00 (the "Note"). Pledgor will benefit from the pledge of the Pledged Collected (as defined below) in order to induce Pledgor to purchase the Note from Lahaina. 2. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in, the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledge Shares and all proceeds of any of the foregoing (collectively, the "Pledged Collateral"). 3. Security for Obligations. The Pledgor's security interest in the Pledged Collateral secures the payment and performance of all obligations of Lahaina now or hereafter existing under the Note, whether for principal, interest, fees, expenses or otherwise, and all obligations of the Pledgor now or hereafter existing under this Agreement and any and all extensions or renewals of the foregoing in whole or in part, whether direct or indirect, absolute or contingent, individual, joint or several, now due or to become due, and whether owed under the foregoing as a drawer, maker, endorser, guarantor, surety or otherwise to the Pledgee by the Pledgor (all such obligations being the "Obligations"). 4. Delivery of Pledged Collateral; Further Assurances. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Pledgee. The Pledgee shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Pledgee or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in section 5(a) of this Agreement. In addition, the Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Pledgee may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Pledgee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. 2 5. Voting Rights; Dividends; Etc. (a) General. So long as no Event of Default (as defined below) or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing: (i) Voting Rights. The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Note; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in the Pledgee's judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof, and provided, further, that the Pledgor shall give the Pledgee at least five (5) days' written notice of the manner in which the Pledgor intends to exercise, or the reasons for refraining from exercising, any such right. (ii) Dividends. The Pledgor shall be entitled to receive and retain any and all dividends and other payments in respect of the Pledged Collateral; provided, however, that any and all: (A) dividends paid or payable other than in cash, and instruments and other property received or receivable in respect of any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid or payable in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to the Pledgee to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Pledgee and be segregated from the other property or funds of the Pledgor (with any necessary endorsement). (iii) Proxies and Other Instruments. The Pledgee shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purposes of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to section 5(a)(i) of this Agreement and to receive the dividends or other payments which it is authorized to receive and retain pursuant to section 5(a)(ii) of this Agreement. (b) Upon Default. Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default, all rights of the Pledgor to exercise the voting and other consensual rights which the Pledgor would otherwise be entitled to exercise pursuant to section 5(a)(i) of this Agreement and to receive the dividends and interest payments which the Pledgor would otherwise be authorized to receive and retain pursuant to section 5(a)(ii) of this Agreement shall cease, and all such rights shall thereupon become vested in the Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments. -2- 3 6. No Transfers or Liens; Substitute Shares. (a) No Transfer or Liens. The Pledgor agrees that the Pledgor will not sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. (b) Substitute Shares. The Pledgor agrees that it will (i) cause the issuer of the Pledged Shares not to issue any stock or other securities in substitution for the Pledged Shares issued by such issuer, except to the Pledgor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any such substitute shares of stock or other securities of the issuer of the Pledged Shares. 7. Pledgee May Perform; Pledgee Appointed Attorney-in-Fact. The Pledgor hereby appoints the Pledgee as the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Pledgee's discretion to take any action and to execute any instrument which the Pledgee deems necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. If the Pledgor fails to perform any agreement contained herein, the Pledgee may itself perform, or cause performance of, such agreement. 8. Reasonable Care. The Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Pledgee accords its own property, it being understood that the Pledgee shall not have any responsibility for ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Pledgee has or is deemed to have knowledge of such matters, or taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. 9. Events of Default; Remedies upon Default. (a) Events of Default. The occurrence of any one or more of the following events shall constitute a default (an "Event of Default") by the Pledgor: (i) the Pledgor fails to pay any Obligation when due and payable or declared due and payable and such failure shall continue for five (5) business days; or (ii) the Pledgor fails or neglects to perform, keep or observe any term, provision, condition, covenant or agreement contained in this Agreement (other than those referred to in section 9(a)(i) of this Agreement) or in any other instrument or document delivered pursuant hereto or in connection herewith, including without limitation the Note of even date herewith from Pledgor to Pledgee, and such failure or neglect shall have continued for a period of ten (10) business days after receipt of written notice from the Pledgee of such failure or neglect; or -3- 4 (iii) the Pledgor makes or submits any false, untrue, incomplete or misleading representation, warranty, schedule, report or other communication to the Pledgee in connection with this Agreement or the Note or any transaction relating hereto or thereto; or (iv) the Pledgor becomes insolvent or generally fails to pay, or admits in writing the Pledgor's inability to pay, the Pledgor's debts as they mature; or (v) there occurs an Event of Default under the Note; or (vi) the Pledgor makes a general assignment for the benefit of creditors, convenes or causes to be convened a meeting of the Pledgor's creditors or the Pledgor's principal creditors, or takes advantage of the insolvency laws of any state, or a petition in bankruptcy or an arrangement or reorganization under the Federal Bankruptcy Code is filed by or against the Pledgor. (b) Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (i) Sale. The Pledgee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the applicable Uniform Commercial Code in effect at that time, and the Pledgee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Pledgee's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Pledgee may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Pledgee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (ii) Proceeds. Any cash held by the Pledgee as Pledged Collateral and all cash proceeds received by the Pledgee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Pledgee, be held by the Pledgee as collateral for, or then or at any time thereafter applied (after payment of any amounts payable to the Pledgee pursuant to section 10 of this Agreement) in whole or in part by the Pledgee against, all or any part of the Obligations in such order as the Pledgee shall elect. Any surplus of such cash or cash proceeds held by the Pledgee and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. 10. Expenses. The Pledgor will upon demand pay to the Pledgee the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Pledgee may incur after the date hereof in connection with the administration of this Agreement, the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, the exercise or enforcement of any of the rights of the Pledgee hereunder, or the failure by the Pledgor to perform or observe any of the provisions hereof. -4- 5 11. Continuing Security Interest; Transfer of Note. This Agreement shall create a continuing security interest in the Pledged Collateral and shall remain in full force and effect until payment in full of the Obligations, be binding upon the Pledgor, and the Pledgor's successors and assigns, and inure to the benefit of the Pledgee and the Pledgee's successors, transferees and assigns. Without limiting the generality of the foregoing, the Pledgee may assign or otherwise transfer the Note to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Pledgee herein or otherwise. Upon the payment in full of the Obligations, the Pledgor shall be entitled to the return, upon the Pledgor's request and at the Pledgor's expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. 12. Indemnification. The Pledgor hereby agrees that the Pledgor shall indemnify and hold the Pledgee harmless from and against any and all costs, expenses, claims, causes of action, damages, injury, or harm suffered by the Pledgee or asserted against the Pledgee relating to Pledgee's performance under this Agreement. In addition, the Pledgor hereby acknowledges and affirms that the Pledgee shall not be obligated to incur any costs or expenses whatsoever in connection with or arising out of or relating to the Pledgee's performance under this Agreement, and the Pledgee, so long as it acts diligently in good faith, shall not have any liability whatsoever to the Pledgor for any act, failure, refusal or omission to act under this Agreement. 13. Termination. Upon the final payment of all Obligations, this Agreement shall terminate and the Pledgee shall transfer and deliver the Pledged Collateral and the accompanying stock transfer powers to the Pledgor or to whosoever shall be lawfully entitled to the same marked "Terminated--Underlying Obligations Satisfied" and dated and signed by the Pledgee. 14. Miscellaneous. (a) Survival. All representations, warranties, covenants and agreements herein contained shall survive the execution and delivery of this Agreement. The remedies of a party for breaches of representations, warranties, covenants or agreements shall not be affected by any investigation by, or knowledge of, the non-breaching party prior to the date of this Agreement. Each party agrees to indemnify, defend and hold the other harmless for all losses, costs and expenses (including without limitation reasonable attorney's fees) arising out of its breach of any representation, warranty, covenant or agreement made by him or it in this Agreement. (b) Notices. All notices and other communications under this Agreement shall be made in writing signed by the party making the same, and shall be deemed given on the date of personal delivery or if mailed by certified or registered United States mail, postage prepaid, on the date mailed (and shall be deemed received on the date of personal delivery or, if so mailed, on the third business day after so mailed), to: -5- 6 If to the Pledgor, to: Lahaina Acquisitions, Inc. -------------------------------- -------------------------------- ATTN: --------------------------- Telecopy: ----------------------- With a copy to: Paul, Hastings, Janofsky & Walker, LLP 600 Peachtree Street, N.E., Suite 2400 Atlanta, Georgia 30308-2222 ATTN: Wayne Shortridge, Esq. Telecopy: (404) 815-2424 If to the Pledgee, to: GCA Strategic Investment Fund Limited 106 Colony Park Drive, Suite 900 Cumming, Georgia 30040 ATTN: Global Capital Advisors, Ltd. Telecopy: (678) 947-6499 with a copy to: Sutherland, Asbill & Brennan LLP 999 Peachtree Street, N.E. Atlanta, Georgia 30309-3996 ATTN: Mark D. Kaufman, Esq. Telecopy: (404) 853-8806 or to such other person or at such other address as either party may specify by written notice to the other party in accordance with this section 14(b). (c) Further Assurances. Each party agrees to do such further acts, and to execute and deliver such additional conveyances, assignments, agreements and instruments as the other may at any time request in connection with the administration and enforcement of this Agreement or relative to the Pledged Collateral or any part thereof, or in order better to assure and confirm to the requesting party his or its rights, powers and remedies under this Agreement. (d) Severability. If any provision of this Agreement shall be invalid or unenforce able under applicable law, such provision shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining provisions. -6- 7 (e) Time of the Essence. Time is of the essence of each and every provision of this Agreement. (f) Assignment; Successors in Interest. (i) Assignment. Except with the prior written consent of the Pledgee, no assignment or transfer by the Pledgor of the Pledgor's rights and obligations under this Agreement may be made. (ii) Binding Nature. This Agreement shall be binding upon the parties to this Agreement and their respective successors and assigns, shall inure to the benefit of the parties to this Agreement and their respective permitted successors and assigns and any reference to a party to this Agreement shall also be a reference to a successor or assign. (g) Number; Gender. Whenever the context so requires, the singular number shall include the plural and the plural shall include the singular, and the gender of any pronoun shall include the other genders. (h) Captions; Certain Definitions. Titles and captions of or in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision of this Agreement. (i) Controlling Law; Integration; Amendment; Waiver. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Georgia without regard to those relating to conflicts of laws. This Agreement supersedes all prior negotiations, agreements and understandings between the parties with respect to the subject matter hereof, constitutes the entire agreement between the parties with respect to the subject matter hereof, and may not be altered or amended except in writing signed by the Pledgor and the Pledgee. The failure of either party to this Agreement at any time or times to require performance of any provisions of this Agreement shall in no manner affect the right to enforce the same. No waiver by either party to this Agreement of any condition, or of the breach of any term, provision, warranty, representation, agreement or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, warranty, representation, agreement or covenant contained in this Agreement. (j) Counterparts. This Agreement may be executed by each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signatures of all of the parties to this Agreement. This Agreement shall become effective when one or more counterparts have been signed by each of the parties to this Agreement and delivered to the other party to this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms of this Agreement to provide or account for more than one of such counterparts. [EXECUTION PAGE FOLLOWS] -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed by their respective authorized officers, as of the date first above written. MONGOOSE INVESTMENTS, LLC By: /s/ Richard Smith ------------------------------------- Name: Richard Smith ----------------------------------- Title: Managing Member ---------------------------------- Address: -------------------------------- -------------------------------- Fax: ---------------------------- Tel.: --------------------------- GCA STRATEGIC INVESTMENT FUND LIMITED By: /s/ Lewis N. Lester --------------------------- Name: Lewis N. Lester Title: Director Address: 106 Colony Park Drive Suite 900 Cumming, Georgia 30040 Fax: 678 947-6499 Tel.: 678 947-0028 Pledge Agreement -8- 9 SCHEDULE I Seven Hundred and Fifty Thousand (750,000) shares of common stock, no par value, of Lahaina Acquisitions, Inc., represented as of the date hereof by Certificate No. 490. -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed by their respective authorized officers, as of the date first above written. LAHAINA ACQUISITIONS, INC. By: /s/ Graham M. Cooper ---------------------------------- Name: GRAHAM M. COOPER ---------------------------------- Title: PRESIDENT ---------------------------------- Address: P.O. Box N 8160 ---------------------------------- NASSAU ---------------------------------- BAHAMAS ---------------------------------- ---------------------------------- Fax: (242) 322-6949 ----------------------------- Tel: (242) 322-2504 ----------------------------- GCA STRATEGIC INVESTMENT FUND LIMITED By: ---------------------------------- Name: Lewis N. Lester Title: Director Address: 106 Colony Park Drive Suite 900 Cumming, Georgia 30040 Fax: 678 947-6499 Tel: 678 947-0028 Pledge Agreement 11 [GUNSTER, YOAKLEY, VALDES-FAULI & STEWART, P.A. LETTERHEAD] December 4, 1998 VIA FEDERAL EXPRESS Mr. Wayne Shortridge, Esq. Paul, Hastings, Janofsky & Walker, LLP 600 Peachtree Street Suite 2400 Atlanta, GA 30308 Dear Wayne: Enclosed please find Lahaina Acquisitions, Inc. stock certificate number 490 representing 750,000 shares currently held by Paxford Investments, S.A. to be held in escrow by you until you receive facsimile instructions signed by me authorizing its release. Also enclosed is a stock power executed by Ivylyn Cassar which should be held in trust until you receive written facsimile instructions from me authorizing its release. Sincerely, /s/ Charles J. Duffy, III ------------------------- Charles J. Duffy, III CJD/maa Enclosures cc: Michael G. Platner 12 LAHAINA ACQUISITIONS, INC. NUMBER Incorporated under the laws of the State of Colorado SHARES No. 490 (3) 750,000 Authorized Capital: 800,000,000 No par value Common Shares This Certifies That SEE REVERSE FOR CERTAIN DEFINITIONS -PAXFORD INVESTMENTS, S.A.- is the owner of ***SEVEN HUNDRED FIFTY THOUSAND*** fully paid and nonassessable Common Shares, no par value per share of LAHAINA ACQUISITIONS, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be subject to the Articles of Incorporation, to all of which the holder by acceptance hereby assents. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in facsimile by its duly authorized officers and the facsimile seal of the Corporation to be duly affixed hereto. This Certificate is not valid until duly countersigned by the Transfer Agent and Registrar. Dated: 5/28/97 [LAHAINA ACQUISITIONS, INC. /s/ PHILIP J. DAVIS CORPORATE SEAL /s/ GARY A. AGRON Philip J. Davis, COLORADO] Gary A. Agron, Secretary President Countersigned and Registered: Corporate Stock Transfer, Inc. 1675 Broadway, Suite 1480 Denver, Colorado 80202 By: /s/ B.A. -------------------- Authorized Signature 13 IRREVOCABLE STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________, Seven Hundred Fifty Thousand (750,000) shares of the common stock of Lahaina Acquisitions, Inc., a Colorado corporation (the "Corporation"), standing in the name of the undersigned on the books of the Corporation represented by certificate number 490. The undersigned does hereby irrevocably constitute and appoint Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., their attorney-in-fact, to transfer the said stock on the books of the Corporation, with full power of the substitution in the premises. DATED: December 4, 1998 PAXFORD INDUSTRIES, S.A. /s/ Ivy Lynn Cassar ------------------------- By: Ivy Lynn Cassar Its: Director, Secretary EX-99.1 9 FORM OF PRESS RELEASE 1 LAHAINA ANNOUNCES CHANGE IN BOARD; ADOPTS RESORT REAL ESTATE FOCUS; ANNOUNCES ACQUISITION Fernandina Beach, Florida - December 28, 1998 -- Lahaina Acquisitions, Inc. (NASDAQ:LAHA) today announced that it has adopted a new business strategy aimed at the development and operation of real estate, and has named a new Chairman & CEO, Richard P. Smyth. The new strategy for the Company comes as a result of its recently completed acquisition of the stock of Beachside Commons I, Inc. which owns a recently completed commercial oceanfront development at Fernandina, Main Beach on Amelia Island, Florida, named Beachside Commons. The site was developed over the last two years by Mongoose Investments, LLC which, as a result of the transaction, has become the Company's largest shareholder. The Company anticipates further real estate related activities in this and other resort markets and will continue to evaluate acquisitions of other operating companies as a part of its growth strategy. "This initial transaction converts the Company to an operating company which is a natural progression of its purpose, and will allow the Company to increase its capital base and move forward with an expanded development strategy," said Richard Smyth, the founder of Mongoose and the new Chairman and CEO of Lahaina. He continued, "Our initial project, Beachside Commons at Main Beach, demonstrates the potential of renovation within the resort marketplace. We are considering a number of other projects on Amelia Island as well as evaluating other markets with similar characteristics." The Company believes that Beachside Commons, a new retail and dining renovation project at the Main Beach in Fernandina Beach, Florida, will become a model for future resort developments. The Company currently intends to create a development and real estate company named Resort Strategies, Inc. (RSI), whose focus will be development and redevelopment within resort marketplaces. RSI will operate as a wholly owned subsidiary of the Company. Mr. Smyth further remarked that, "The Company intends to expand through a combination of internal development projects and the acquisition of existing sites or companies. Its operating subsidiary, Resort Strategies, Inc., will seek additional opportunities in emerging resort markets, in addition to the management of current projects on Amelia Island, Florida". "We believe that resort marketplaces represent growth opportunities, as well as pose unique challenges. To take full advantage of the opportunities one must adapt to these challenges and requirements, creating projects that meet the special needs of a resort. It's an interesting niche, with large scope potential," explained Mr. Smyth. When asked about other 2 investments or acquisitions, he replied, "Our Resort Strategies, Inc. subsidiary will focus generally on resort opportunities, although we will evaluate other situations at the holding company level." The initial acquisition transaction involved the issuance of 1,250,000 shares of Common Stock, $1.92 million of convertible Series A Preferred Stock and the payment of $675,000 of cash to Mongoose, as well as the assumption of a first mortgage on Beachside Commons property in the principal amount of $1.55 million. Additional information about the Company can be found on its Form 8-K filed with the Securities and Exchange Commission on December __, 1998, and other previously filed documents. This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans and expectations of Lahaina, its affiliates or subsidiaries, and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those suggested or described in the forward-looking statements contained in this press release. Important factors that could cause actual results to differ include, among others, risks associated with future acquisitions (such as quality of projects acquired, financing costs and profitability of operations), fluctuations in operating results, variations in stock prices, change in public interest in resorts, political and economic climate, competition, weather conditions, risks of operations, regulatory agencies, policies, financing difficulties and difficulties in integrating newly acquired businesses. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained from time to time in the Company's SEC filings. Copies of these filings may be obtained by contacting the Company or the SEC. -----END PRIVACY-ENHANCED MESSAGE-----