COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is
dated as of January 17, 2002 by and between Path 1 Network Technologies Inc., a
Delaware corporation (the "Company") and DTKA Holdings Limited (the
"Purchaser"), a British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and subject
to the conditions contained herein, the Company shall issue and sell to
Purchaser from time to time as provided herein, and Purchaser shall purchase, up
to US$10,000,000 of Common Stock; and
WHEREAS, such investments will be made by the Purchaser as
statutory underwriter of a registered indirect primary offering of such Common
Stock by the Company.
NOW, THEREFORE, in consideration of the foregoing premises,
and the promises and covenants herein contained, the receipt and sufficiency of
which are hereby acknowledged by the parties hereto, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of US$10,000,000 of Common Stock (the "Commitment Amount"), subject to
the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto, (the "Initial Closing") shall take place at the offices of the
Purchaser's legal counsel at 00 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX
00000, (i) within ten (10) calendar days from the date hereof, or (ii) such
other time and place or on such date as the Purchaser and the Company may agree
upon (the "Initial Closing Date"). Each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Initial Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows, except as set forth
in the SEC Documents or on the Disclosure Schedule prepared by the Company and
attached hereto, or as contemplated by this Agreement:
(a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated validly existing and in good standing under the laws of the
state of Delaware and has all requisite corporate authority to own, lease
and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not
own more than fifty percent (50%) of or control any other business entity
except as set forth in the SEC Documents or on the Disclosure Schedule. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not
have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations
under the Transaction Documents and to issue the Draw Down Shares pursuant
to their respective terms, (ii) the execution and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no further consent or authorization of
the Company or its Board of Directors or stockholders is required, and
(iii) the Transaction Documents have been duly executed and delivered by
the Company and at the Initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock of which 8,814,226
shares are issued and outstanding, 20,000,000 shares of Class B Common
Stock none of which are issued and outstanding and 10,000,000 shares of
Blank Check Preferred Stock of which none are issued and outstanding. All
of the outstanding shares of the Company's Common Stock have been duly and
validly authorized and are fully paid and non-assessable except as set
forth in the SEC Documents. No shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company except as set forth in he
SEC Documents or on the Disclosure Schedule. There are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company
or options, securities or rights convertible into shares of capital stock
of the Company. The Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital
stock of the Company. The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Initial Closing complied with all applicable federal and state securities
laws, and no stockholder has a right of rescission or damages with respect
thereto which would have a Material Adverse Effect. The Company has made
available to the Purchaser true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof (the
"Charter"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws"). The Company has not received any notice from the Principal
Market questioning or threatening the continued inclusion of the Common
Stock on such market.
(d) No Conflicts. The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Charter or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv)
result in a violation of any federal, state, local or other foreign
statute, rule, regulation, order, judgment or decree (including any federal
or state securities laws and regulations) applicable to the Company or any
of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries are bound or affected, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations, cancellations
and violations as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. The business of the Company
and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under any federal,
state or local law, rule or regulation to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be
required to be made by the Company with the SEC or state securities
administrators and any registration statement which may be filed pursuant
hereto); provided, however, that for purpose of the representations made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.
(e) SEC Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Exchange Act, and, the Company
is current with all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act. The Company has delivered or
made available to the Purchaser, through the XXXXX system or otherwise,
true and complete copies of the SEC Documents filed with the SEC since
January 10, 2000. The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements under GAAP and the published rules and regulations of the SEC
or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may
not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(f) Subsidiaries. The SEC Documents or the Disclosure Schedule attached hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such subsidiary.
For the purposes of this Agreement, "subsidiary" shall mean any corporation
or other entity of which at least a majority of the securities or other
ownership interests having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the
Company and/or any of its other subsidiaries. All of the issued and
outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable. There
are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any subsidiary
for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence.
(g) No Material Adverse Effect. Since the date of the financial statement
contained in the most recently filed Form 10-Q (or 10-QSB) or Form 10-K (or
10-KSB), whichever is most current, no Material Adverse Effect has occurred
or exists with respect to the Company, except as disclosed in the SEC
Documents or on the Disclosure Schedule attached hereto.
(h) No Undisclosed Liabilities. Neither the Company nor any of its subsidiaries
has any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with
GAAP which are not disclosed in the SEC Documents or on the Disclosure
Schedule, other than those incurred in the ordinary course of the Company's
or its subsidiaries' respective businesses since such date or which,
individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.
(i) No Undisclosed Events or Circumstances. Since the date of the financial
statement contained in the most recently filed Form 10- Q (or 10-QSB) or
Form 10-K (or 10-KSB), whichever is most current, no event or circumstance
has occurred or exists with respect to the Company or its businesses,
properties, prospects, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the SEC Documents.
(j) Indebtedness. The SEC Documents (including the financial statements
included therein) or the Disclosure Schedule attached hereto sets forth as
of the date hereof all outstanding secured and unsecured Indebtedness of
the Company or any subsidiary, or for which the Company or any subsidiary
has commitments. For the purposes of this Agreement, "Indebtedness" shall
mean (A) any liabilities for borrowed money in excess of $500,000 (other
than trade accounts payable incurred in the ordinary course of business),
(B) all guaranties, endorsements and contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected
in the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (C) any lease payments
with a present value in excess of $500,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary
is in default with respect to any Indebtedness.
(k) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except such that do not cause a Material
Adverse Effect. All real property leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect.
(l) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of
their respective properties or assets, which action, suit, claim,
investigation or proceeding would reasonably be expected to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory
body against the Company or any subsidiary except those orders, judgments,
injunctions, awards or decrees which would not reasonably be expected to
have a Material Adverse Effect.
(m) Compliance with Law. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(n) Taxes. The Company has timely filed all material Tax Returns and notices.
The Company has no knowledge, or any reasonable grounds to know, of any Tax
deficiencies of any nature whatsoever which would, in the aggregate, be
reasonably likely to result in a Material Adverse Effect.
For purposes of this Section 3.1(n):
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or
not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
(o) Certain Fees. No brokers, finders or financial advisory fees or commissions
will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(p) Disclosure. To the best of the Company's knowledge, neither this Agreement
or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or
any subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(q) Operation of Business. The Company and each of the subsidiaries owns or
possesses all patents, trademarks, service marks, trade names, copyrights,
licenses and authorizations as set forth in the SEC Documents or the
Disclosure Schedule attached hereto, and all rights with respect to the
foregoing, which to its knowledge would be reasonably necessary for the
conduct of its business as now conducted without any conflict with the
rights of others.
(r) Regulatory Compliance. The Company has all necessary licenses,
registrations and permits to conduct its business as now being conducted in
all states where the Company conducts its business.
(s) Books and Records. The records and documents of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location
and collection of their assets, and the nature of all transactions giving
rise to the obligations or accounts receivable of the Company or any
subsidiary.
(t) Material Agreements. Neither the Company nor any subsidiary is a party to a
Material Agreement. The Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by
them to date under the foregoing agreements, have received no notice of
default and, to the best of the Company's knowledge are not in default
under any Material Agreement now in effect, the result of which would cause
a Material Adverse Effect. No written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement of the Company or of
any subsidiary limits or shall limit the payment of dividends on the
Company's Common Stock.
(u) Transactions with Affiliates. There are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or
other continuing transactions exceeding $100,000 between
(A) the Company, any subsidiary or any of their respective customers
or suppliers on the one hand, and
(B) on the other hand, any officer, employee, consultant or director
of the Company, or any of its subsidiaries, or any person owning any
capital stock of the Company or any subsidiary or any member of the
immediate family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder. (v)
Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person (other than
the Purchaser), so as to bring the issuance and sale of the Shares under
the registration provisions of the Securities Act and applicable state
securities laws. Neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) in connection with the offer or sale of the
Shares.
(w) Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any subsidiary is in breach of any employment
contract, agreement regarding proprietary information, noncompetition
agreement, nonsolicitation agreement, confidentiality agreement, or any
other similar contract or restrictive covenant, relating to the right of
any officer, employee or consultant to be employed or engaged by the
Company or such subsidiary. Since December 31, 2000, no officer, consultant
or key employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention
of terminating his or her employment or engagement with the Company or any
subsidiary. (x) Absence of Certain Developments. Since December 31, 2000,
neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any
shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business or to the Purchaser or its
representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(x) entered into any other material transaction, whether or not
in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries.
(y) Governmental Approvals. Except for the filing of any notice prior or
subsequent to any Settlement Date that may be required under applicable
federal or state securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or
post-effective amendment pursuant to this Agreement, no authorization,
consent, approval, license, exemption of, filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(z) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereunder. The Company further represents to the Purchaser
that the Company's decision to enter into this Agreement has been based
solely on (a) the Purchaser's representations and warranties in Section
2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a corporation
duly incorporated, validly existing and in good standing under the laws of
the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to
purchase the Shares. The execution, delivery and performance of the
Transaction Documents by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and at the Initial Closing shall constitute valid and
binding obligations of the Purchaser enforceable against the Purchaser in
accordance with their terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this Agreement and
the consummation by the Purchaser of the transactions contemplated hereby
or relating hereto do not and will not (i) result in a violation of the
Purchaser's charter documents or bylaws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which the Purchaser is a party, or result in a
violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Company herein.
(d) Financial Risks. The Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Shares and that it has
been given full access to such records of the Company and the subsidiaries
and to the officers of the Company and the subsidiaries as it has deemed
necessary or appropriate to conduct its due diligence investigation. The
Purchaser is capable of evaluating the risks and merits of an investment in
the Shares by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters and the
Purchaser is capable of bearing the entire loss of its investment in the
Shares.
(e) Accredited Investor. The Purchaser is an "accredited investor" as defined
in Rule 501 of Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in
order to determine the suitability of the Purchaser to acquire the Shares.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down, the
Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, the Company may not make a
Draw Down to the extent that, after such purchase by the Purchaser, the sum of
the number of shares of Common Stock beneficially owned by the Purchaser and its
affiliates would result in beneficial ownership by the Purchaser and its
affiliates of more than 9.9% of the then outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal Market, in accordance with its rules and regulations, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares to the Purchaser
or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Purchaser has disposed of all of the
Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with New York Escrow Services, LLC (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement Date,
the Registration Statement and the prospectus therein (a) shall not contain any
untrue statement of a material fact or omit to state any material fact to be
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and (b) on such Settlement Date or date of filing of the Registration Statement
and the prospectus therein will not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus therein in reliance upon and in conformity with the
information furnished in writing to the Company by the Purchaser specifically
for inclusion in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall materially comply, and
cause each subsidiary to materially comply, with all applicable state, federal
and Principal Market laws, rules, regulations and orders, noncompliance with
which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict the ability of the Company to
perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. Subject to applicable laws, rules, regulations
and orders, the Company will promptly notify the Purchaser in writing upon the
occurrence of any of the following events in respect of the Registration
Statement or related prospectus in respect of the Shares:
(i) receipt of any request for additional information from the
SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to
which would require any amendments or supplements to the Registration
Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for
that purpose;
(iii) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose;
(iv) the happening of any event that makes any statement made in
the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in
the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(v) the Company's reasonable determination that filing of a
post-effective amendment or withdrawal of the Registration Statement
would be appropriate. The Company shall not deliver to the Purchaser
any Draw Down Notice during the continuation of any of the foregoing
events. The Company shall promptly make available to the Purchaser any
such supplements or amendments to the related prospectus, at which
time, provided that the Registration Statement and any supplements and
amendments thereto are then effective, the Company may recommence the
delivery of Draw Down Notices.
Section 3.11. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the current market price until the earlier of (i) 24
months from the Effective Date, or (ii) sixty (60) days after the entire
Commitment Amount has been purchased by the Purchaser. The foregoing shall not
prevent or limit the Company from engaging in any sale of securities (i) in a
registered public offering by the Company which is underwritten by one or more
established investment banks (not including an equity line type of financing),
(ii) in one or more private placements where the purchasers do not have
registration rights, (iii) pursuant to any presently existing or future employee
benefit plan which plan has been or is approved by the Company's stockholders,
(iv) pursuant to any compensatory plan for a full-time employee or key
consultant, (v) in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money, (vi)
pursuant to the exercise of any presently issued and outstanding options or
warrants, (vii) in a private placement of up to, in the aggregate, $5,000,000,
with either Xxxxxxx Global Securities, Inc. or XX Xxxxx acting as the placement
agent for such private placement, or (viii) to which Purchaser gives its prior
written consent, which consent shall not be unreasonably withheld. Further, the
Purchaser shall have a right of first refusal, or at its option, to elect to
participate, in such subsequent transaction in the case of (vii) and (viii)
above. Such right of first refusal or participation, as the case may be, must be
exercised in writing within seven (7) Trading Days of the Purchaser's receipt of
notice of the proposed terms of such financing.
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.14. Limitations on Short Sales. The Purchaser shall not enter
into any Short Sales (as hereinafter defined) (or shall not cause or induce any
of its affiliates (as defined in Rule 501 of the Securities Act) to enter into
any Short Sales) from the period commencing on the Initial Closing Date and
ending at the earlier of the date this Agreement is terminated and the end of
the Commitment Period. For purposes of this Section 3.14, a "Short Sale" by the
Purchaser shall mean a sale of Common Stock by the Purchaser that is marked as a
short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by the Purchaser. For purposes of determining
whether there is an equivalent offsetting long position in the Common Stock held
by the Purchaser, Draw Down Shares to be delivered pursuant to a Draw Down
Notice but not yet delivered shall be deemed to be held long by the Purchaser as
of the date of the applicable Draw Down Notice and the Warrant Shares underlying
the Warrants shall be deemed to be held long by the Purchaser.
Section 3.15. Prospectus Delivery Requirements. The Purchaser agrees that
it will, whenever required by federal securities laws, deliver the Prospectus
included in the Registration Statement to any purchaser of Draw Down Shares from
the Purchaser.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser pursuant to a Draw
Down Notice delivered hereunder is subject to the satisfaction or waiver, at or
before the Initial Closing, and as of each Settlement Date, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time, except
for representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed, satisfied
and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the Initial
Closing and as of each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened,
against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall have
received an opinion of counsel to the Company, dated as of the Initial
Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to the
Purchaser a warrant to purchase up to a number of shares of Common Stock
(the "Warrant Shares") equal to $300,000 divided by the average of the
VWAPs during the 15 Trading Days immediately prior to the Initial Closing
Date (the "Warrant Base Price"). The Warrant shall have a term from its
initial date of exercise of 5 years. The exercise price of the Warrant
shall be 115% of the Warrant Base Price. The Common Stock underlying the
Warrant will be registered in the Registration Statement referred to in
Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Draw Down Shares. The obligation hereunder
of the Purchaser to accept a Draw Down request and to acquire and pay for the
Draw Down Shares is subject to the satisfaction at or before each Settlement
Date, of each of the conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall have
satisfied at the Initial Closing, or the Purchaser shall have waived at the
Initial Closing, the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement registering
the Shares shall have been declared effective by the SEC and shall remain
effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have been
suspended by the SEC or the Principal Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the delivery of each Draw Down Notice), and,
at any time prior to such Draw Down Notice, trading in securities generally
as reported on the Principal Market shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported on the Principal Market unless the general
suspension or limitation shall have been terminated prior to the delivery
of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no Consolidation
Event where the successor entity has not agreed to perform the Company's
obligations hereunder shall have occurred since the later of the Initial
Closing or the Settlement of the immediately preceding Draw Down, such
occurrences to be determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. On the Effective Date and on the first Settlement Date
of each Draw Down, the Purchaser shall have received (i) a "down-to-date"
letter from the Company's counsel, confirming that there is no change from
the counsel's previously delivered opinion, or else specifying with
particularity the reason for any change and an opinion as to the additional
items specified in Exhibit C hereto, (ii) as to each Settlement, a Form
424(b)(3) supplemental prospectus, if required by applicable law and (iii)
any other items set forth in the Escrow Agreement (not including the escrow
fee if the Escrow Agent is not used for such Draw Down). As to any Draw
Down, the Company may elect not to deliver the above-referenced opinion;
provided, however, the applicable Purchase Price Percentage as to such Draw
Down shall be reduced an additional 4%.
(f) Future Financing. The Company shall have not completed any financing
prohibited by Section 3.12 unless, prior to the Company delivering the
first Draw Down Notice after any such financing, the Company pays the
Purchaser as a condition to accepting such draw down and not as liquidated
damages, the sum of $100,000.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw downs
against the Commitment Amount (each a "Draw Down") during the Commitment
Period, which Draw Downs the Purchaser shall be obligated to accept,
subject to the terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period. There
shall be a minimum of 3 Trading Days between Draw Down Pricing Periods. The
number of shares of Common Stock purchased by the Purchaser with respect to
each Draw Down shall be determined as set forth in Section 5.1(e) herein.
The Draw Down Pricing Period shall be divided into settlement periods
(each, a "Settlement Period"). Notwithstanding anything herein to the
contrary, if the Draw Down Pricing Period consists of less than 12 Trading
Days, the Draw Down Pricing Period shall be the same number of Trading Days
as the Draw Down Pricing Period. If the Draw Down Pricing Period is equal
to or greater than 12 Trading Days, the Draw Down Pricing Period shall
consist of 2 Settlement Periods determined as follows: if the number of
Trading Days in the Draw Down Pricing Period is even, the number of Trading
Days in each Settlement Period shall be equal. If the number of Trading
Days in the Draw Down Pricing Period is odd, then the first Settlement
Period shall have one more Day than the second Settlement Period. Delivery
of the Draw Down Shares purchased as to a Settlement Period and payment
therefore shall occur on or prior to the second Trading Day after the
applicable Settlement Period (the "Settlement Date").
(c) In connection with each Draw Down Pricing Period, the Company shall set the
Threshold Price in the Draw Down Notice. During any Draw Down Pricing
Period, the Company may provide notice to the Purchaser that it elects to
increase or decrease the Threshold Price, provided that such amended
Threshold Price shall only be effective as to the Trading Days in a Draw
Down Pricing Period occurring 2 Trading Days after such notice is properly
delivered to the Purchaser. Notwithstanding anything herein to the
contrary, the Company shall be precluded from amending the Threshold Price
during an Over Investment Amount Period (as defined in Section 5.1(d)
below).
(d) The minimum Investment Amount for any Draw Down shall be $100,000 and the
maximum Investment Amount as to each Draw Down shall be equal to [Pricing
Days]/20 multiplied by 6.0% of the EQY weighted average price field (as
reported on Bloomberg Financial L.P. using the BLPH function) for the
Common Stock for the 60 calendar day period immediately prior to the
applicable Commencement Date (defined below) multiplied by the total
trading volume in respect of the Common Stock for such period.
Notwithstanding anything herein to the contrary, (i) the Company may
request an Investment Amount that exceeds the maximum Investment Amount set
forth above provided that the Threshold Price for the applicable Draw Down
Pricing Period exceeds 80% of the average of the 5 VWAPs immediately prior
to the date the applicable Draw Down Notice is delivered, and (ii) during a
Draw Down Pricing Period, the Company may increase the unallocated portion
of Investment Amount by delivering to the Purchaser written notice stating
the amount by which the Company increases the Investment Amount, provided,
however, such notice also stipulates a Threshold Price for the remaining
portion of the Draw Down Pricing Period that exceeds 80% of the average of
the 5 VWAPs immediately prior to the date such notice is delivered (such
periods in (i) and (ii) above, "Over Investment Amount Periods").
(e) The number of Shares of Common Stock to be issued on each Settlement Date
shall be a number of shares equal to the sum of the quotients (for each
trading day within the Settlement Period) of (x) 1/[Pricing Days] of the
Investment Amount allocated to a Trading Day within the Settlement Period,
and (y) the Purchase Price on such Trading Day, subject to the following
adjustments:
(i) if the VWAP on a given Trading Day is less than the Threshold
Price, then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/[Pricing
Days] of the applicable Investment Amount and such Trading Day shall
be withdrawn from the Settlement Period;
(ii) if during any Trading Day during the Settlement Period
trading of the Common Stock on the Principal Market is suspended for
more than three (3) hours, in the aggregate, or if any Trading Day
during the Settlement Period is shortened because of a public holiday,
then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/[Pricing
Days] of the applicable Investment Amount and such Trading Day shall
be withdrawn from the Settlement Period; and
(iii) if during any Trading Day during the Settlement Period
sales of Draw Down Shares pursuant to the Registration Statement are
suspended by the Company in accordance with Sections 3(j) or 5(e) of
the Registration Rights Agreement for more than three (3) hours, in
the aggregate, during the Settlement Period, then that portion of the
Investment Amount to be paid on the immediately pending Settlement
Date shall be reduced by 1/[Pricing Days] of the applicable Investment
Amount and such Trading Day shall be withdrawn from the Settlement
Period.
(f) The Company must inform the Purchaser by delivering a draw down notice, in
the form of Exhibit D hereto (the "Draw Down Notice"), via facsimile
transmission in accordance with Section 8.4 as to the amount of the Draw
Down (the "Investment Amount") the Company wishes to exercise and the
number of Trading Days in the Draw Down Pricing Period ("Pricing Days"),
before the first day of the Draw Down Pricing Period (the "Commencement
Date"). Notwithstanding anything herein to the contrary, in no event shall
the Company deliver a Draw Down Notice with a number of Pricing Days as to
any Draw Down Pricing Period that is less than 2 Trading Days or more than
20 Trading Days. If the Commencement Date is to be the date of the Draw
Down Notice, the Draw Down Notice must be delivered to and receipt
confirmed by the Purchaser at least one (1) hour before trading commences
on such date. Unless during an Over Investment Amount Period, at no time
shall the Purchaser be required to purchase more than the maximum
Investment Amount for a given Draw Down Pricing Period; in other words, if
the Company chooses not to exercise the maximum Investment Amount in a
given Draw Down Pricing Period the Purchaser is not obligated to and shall
not purchase more than the scheduled maximum Investment Amount in a
subsequent Draw Down Pricing Period.
(g) On each Settlement Date, the Shares purchased by the Purchaser during the
immediately preceding Settlement Period shall be delivered to The
Depository Trust Company ("DTC") on the Purchaser's behalf. Upon the
Company electronically delivering whole shares of Common Stock to the
Purchaser or its designees via DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system by 1:00 p.m. New York time, the Purchaser shall
wire transfer immediately available funds to the Company's designated
account on such day, less any fees as set forth in the Escrow Agreement,
which fees shall be wired as directed in the Escrow Agreement. Upon the
Company electronically delivering whole shares of Common Stock to the
Purchaser or its designees DTC account via DWAC after 1:00 p.m. New York
time, the Purchaser shall wire transfer next day available funds to the
Company's designated account on such day, less any fees as set forth in the
Escrow Agreement, which fees shall be wired as directed in the Escrow
Agreement. In the event that either party elects to use the Escrow Agent,
the Shares shall be credited by the Company to the DTC account designated
by the Purchaser via DWAC upon receipt by the Escrow Agent of payment for
the Draw Down Shares into the Escrow Agent's master escrow account, as
further set forth in the Escrow Agreement, and the Escrow Agent shall be
directed to pay the purchase price to the Company, net of $1,000 per
Settlement as escrow expenses to the Escrow Agent and any additional fees
as set forth in the Escrow Agreement. The Company understands that a delay
in the delivery of the Draw Down Shares into the Purchaser's DTC account
beyond 5 Trading Days after the dates set forth herein or in the Escrow
Agreement, as the case may be, could result in economic loss to the
Purchaser. Notwithstanding anything herein to the contrary, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to
the Purchaser for late delivery after 5 Trading Days from such dates in
accordance with the following schedule (where "No. Trading Days Late" is
defined as the number of Trading Days beyond 5 Trading Days from the dates
set forth herein or in the Escrow Agreement, as the case may be, on which
such Draw Down Shares are to be delivered into the Purchaser's DTC account
via the DWAC system):
------------------------- ------------------------------------------------------
No. Trading Days Xxxx Xxxx Payment for Each
$5,000 of Draw Down Shares
Being Purchased
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
1 $100
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
2 $200
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
3 $300
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
4 $400
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
5 $500
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
6 $600
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
7 $700
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
8 $800
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
9 $900
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
10 $1,000
------------------------- ------------------------------------------------------
------------------------- ------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days.
------------------------- ------------------------------------------------------
The Company shall pay any payments incurred under this Section 5.1(g) in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages (in lieu of
the liquidated damages set forth above) for the Company's failure to issue and
deliver the Draw Down Shares to the Company, including, without limitation, the
Purchaser's actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 24 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice if (i) an
event resulting in a Material Adverse Effect has occurred and has not been
cured for a period of 30 days after written notice thereof, (ii) the Common
Stock is de-listed from the Principal Market for a period exceeding 3
consecutive days unless such de-listing is in connection with the Company's
subsequent listing of the Common Stock on the Nasdaq National Market,
Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, or (iii) the Company files for protection from creditors under
any applicable law.
(b) The Company may terminate this Agreement upon one (1) Trading Day's notice
if the Purchaser shall fail to fund a properly noticed Draw Down within 5
Trading Days of the end of the applicable Settlement Period.
Section 6.3. Effect of Termination.
Section 6.4. In the event of termination of this Agreement pursuant to
Section 6.2 herein, written notice thereof shall forthwith be given to the other
party and the transactions contemplated by this Agreement shall be terminated
without further action by either party. If this Agreement is terminated as
provided in Section 6.1 or 6.2 herein, this Agreement shall become void and of
no further force and effect, except for Sections 8.1, 8.2 and 8.9, and Article 7
herein. Nothing in this Section 6.3 shall be deemed to release the Company or
the Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company or the Purchaser to compel specific performance
by the other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser (and its
directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchaser as a result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Company as result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein. Notwithstanding anything to the
contrary herein, the Purchaser shall be liable under this Section 7.1(b)
for only that amount as does not exceed the net proceeds to the Purchaser
as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject in each case pursuant
to applicable law, rules or regulations.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this Agreement shall
pay its own fees and expenses related to the transactions contemplated by this
Agreement; except that, the Company shall pay, at the Initial Closing, a
non-accountable expense allowance for the Purchaser's legal, administrative and
due diligence costs and expenses of $50,000 to the Purchaser, and the escrow fee
upon each Settlement. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Shares pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire understanding of the parties with respect to the matters covered in
the Transaction Documents. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received), or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 0000 Xxxxx Xx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxxxxxxx X. Xxxx, President
and CEO
Tel: (000) 000-0000
Fax: (000) 000-0000
with copies to: Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
(which shall not constitute notice): 00000 Xx Xxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxx Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: as set forth on the signature page hereto
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith. Section 8.5. Waivers. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement and the rights and
obligations thereunder may not be assigned by either party. The parties hereto
may not amend this Agreement or any rights or obligations hereunder without the
prior written consent of the Company and the Purchaser.
Section 8.8. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. The Company and the
Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any dispute or controversy arising out of or relating to
this Agreement. Any dispute or controversy under this Agreement or any Exhibit
attached hereto shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty (30) days of
any deadline for such participation. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The prevailing party shall
be awarded its costs, including reasonable attorneys' fees, from the
non-prevailing party as part of the arbitration award. Any party shall have the
right to seek injunctive relief, including without limitation as set forth in
Section 8.2, from any court of competent jurisdiction in any case where such
relief is available. The prevailing party in such injunctive action shall be
awarded its costs, including reasonable attorneys' fees, from the non-prevailing
party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Except as required by law or regulations or the
rules of the Principal Market, neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. In connection with the Initial Closing, if the Company deems it necessary
or desirable, the Company may issue a press release or file an appropriate
report with the SEC regarding the transactions contemplated hereby; provided,
however, that prior to issuing any such press release, making any such public
statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible,
so long as such construction does not materially adversely affect the economic
rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term in Section
5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term in Section
1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the Effective Date
and expiring on the earliest to occur of (i) the date on which the
Purchaser shall have exercised an aggregate amount of Draw Downs equal to
the Commitment Amount, (ii) the date this Agreement is terminated in
accordance with the terms hereof, or (iii) the date occurring 24 months
after the Effective Date.
(d) "Common Stock" shall mean the Company's Class A Common Stock, $0.001 par
value per share.
(e) "Disclosure Schedule" shall mean the schedules prepared by the Company and
attached hereto.
(f) "Draw Down" shall have the meaning assigned to such term in Section 5.1(a)
hereof.
(g) "Draw Down Notice" shall have the meaning assigned to such term in Section
5.1(f) hereof.
(h) "Draw Down Pricing Period" shall mean, as to any Draw Down, a period of
consecutive Trading Days equal to the Pricing Days, beginning on the date
specified in the Draw Down Notice; provided, however, the Draw Down Pricing
Period shall not begin before the day on which receipt of such notice is
confirmed by the Purchaser.
(i) "DTC" shall have the meaning assigned to such term in Section 5.1(g).
(j) "DWAC" shall have the meaning assigned to such term in Section 5.1(g).
(k) "Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(m) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(n) "Initial Closing" shall have the meaning assigned to such term in S ection
1.2 hereof.
(o) "Initial Closing Date" shall have the meaning assigned to such term in
Section 1.2 hereof.
(p) "Investment Amount" shall have the meaning assigned to such term in Section
5.1(f) hereof.
(q) "Material Adverse Effect" shall mean any adverse effect on the business,
operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole and/or any condition, circumstance, or situation that
would prohibit or otherwise materially interfere with the ability of the
Company to perform any of its material obligations under this Agreement or
the Registration Rights Agreement or to perform its obligations under any
other material agreement; provided, however, that the following shall not
be taken into account in determining a "Material Adverse Event": (i) any
adverse change, event or effect that is directly attributable to conditions
affecting the United States economy generally unless such conditions
adversely affect the Company in a materially disproportionate manner, and
(ii) any adverse change, event or effect that is directly attributable to
conditions affecting the Company's industry generally, unless such
conditions adversely affect the Company in a materially disproportionate
manner.
(r) "Material Agreement" shall mean any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, a copy of which is
required to be filed with the SEC as an exhibit to any of the SEC
Documents.
(s) "Pricing Days" shall have the meaning assigned to such term in Section
5.1(e) hereof.
(t) "Principal Market" shall mean initially the OTC Bulletin Board and shall
include the American Stock Exchange, the Nasdaq National Market, the Nasdaq
Small-Cap Market and the New York Stock Exchange if the Company becomes
listed and trades on such market or exchange after the date hereof.
(u) "Purchase Price" shall mean, with respect to Shares purchased during each
applicable Draw Down Pricing Period and subject to Section 4.3(e), 91.5% of
the VWAP on the date in question (the "Purchase Price Percentage"), except
that, for each US$15,000,000 increase in the Market Cap over US$65,000,000
during the applicable Market Cap Period (as defined below), the Purchase
Price Percentage shall be increased by 0.25% as to the applicable Draw Down
Pricing Period until the Purchase Price Percentage equals 93.5%. The Market
Cap shall be calculated by multiplying the number of shares of Common Stock
issued and outstanding on the date in question by the VWAP of the Common
Stock on such date. Notwithstanding anything to the contrary herein, such
increases in the Purchase Price Percentage shall only occur if the increase
in the Market Cap is maintained for at least twenty (20) consecutive
Trading Days immediately prior to the date the applicable Draw Down Pricing
Period commences (the "Market Cap Period"). By way of example, if the
Market Cap is greater than US$79,999,999 during the entire Market Cap
Period applicable to a Draw Down Pricing Period, the Purchase Price
Percentage shall be 91.75% as to that Draw Down Pricing Period. However, if
the Market Cap at any time during a subsequent Market Cap period is less
than US$79,999,999 the Purchase Price Percentage as to such Draw Down
Pricing Period shall be 91.5%.
(v) "Registration Statement" shall mean the registration statement under the
Securities Act, to be filed with the Securities and Exchange Commission for
the registration of the Shares pursuant to the Registration Rights
Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement).
(w) "SEC" shall mean the Securities and Exchange Commission.
(x) "SEC Documents" shall mean the Company's latest Form 10-K or Form 10-KSB as
of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter
until the time in question, the Proxy Statement for its latest fiscal year
as of the time in question, and any exhibits to the aforementioned
documents, until such time as the Company no longer has an obligation to
maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
(z) "Settlement" shall mean the delivery of the Draw Down Shares into the
Purchaser's DTC account via DTC's DWAC System in exchange for payment
therefor.
(aa) "Settlement Date" shall have the meaning assigned to such term in Section
5.1(b).
(bb) "Settlement Notice" shall have the meaning assigned to such term in Section
5.1(a)(i).
(cc) "Settlement Period" shall have the meaning assigned to such term in Section
5.1(b).
(dd) "Shares" shall mean, collectively, the shares of Common Stock of the
Company being subscribed for hereunder and issued upon the exercise of a
Draw Down (also referred to herein as the "Draw Down Shares") and the
Warrant Shares.
(ee) "Threshold Price" shall mean the price per Share designated by the Company
as the lowest VWAP during any Draw Down Pricing Period at which the Company
shall sell its Common Stock in accordance with this Agreement.
(ff) "Trading Day" shall mean any day on which the Principal Market is open for
business.
(gg) "Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement and the Escrow Agreement.
(hh) "VWAP" shall mean the daily volume weighted average price of the Company's
Common Stock on the Principal Market as reported by Bloomberg Financial
L.P. (based on a trading day from 9:30 a.m. ET to 4:02 p.m. Eastern Time)
using the VAP function on the date in question.
(ii) "Warrant" shall mean the warrant issued to the Purchaser pursuant to
Section 4.2(f) hereof.
(jj) "Warrant Shares" shall have the meaning set forth in Section 4.2(f) hereof.
***********************
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date set forth
above.
PATH 1 NETWORK TECHNOLOGIES INC.
By: /s/ Xxxxxxxxx X. Xxxx
-------------------------------------
Xxxxxxxxx X. Xxxx, President & CEO
DTKA HOLDINGS LIMITED
By: /s/ Xxxxx Xxxx
--------------------------------------
Name: Xxxxx Xxxx
Title: Director
Address for Notice:
x/x Xxxxxx Xxxxxxx Xxxxxxxxxx
X.X. Xxx 000
Roadtown, Tortola
British Virgin Islands
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 17, 2002 between
DTKA Holdings Limited ("Purchaser") and Path 1 Network Technologies Inc. (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
pursuant to a Common Stock Purchase Agreement dated the date hereof (the
"Purchase Agreement") the Purchaser has committed to purchase up to $10,000,000
of the Company's Common Stock (terms not defined herein shall have the meanings
ascribed to them in the Purchase Agreement) and Warrants; and
WHEREAS, the Company desires to grant to the Purchaser the registration
rights set forth herein with respect to the Draw Down Shares and the Warrant
Shares (collectively, the "Securities").
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means the Securities until (i) all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities have been otherwise transferred to persons who may trade
such Securities without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend, or (iv) such time as, in the
opinion of counsel to the Company, all Securities may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. The Purchaser acknowledges and understands
that in the absence of an effective Registration Statement authorizing the
resale of the Securities as provided herein, the Securities are "restricted
securities" as defined in Rule 144. The Purchaser understands that no
disposition or transfer of the Securities may be made by Purchaser in the
absence of (i) an opinion of counsel to the Purchaser, in form and substance
reasonably satisfactory to the Company, that such transfer may be made without
registration under the Securities Act or (ii) such registration.
With a view to making available to the Purchaser the benefits of Rule 144,
the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of
Rule 144; and (b) file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of the Purchaser, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file with the Securities and
Exchange Commission ("Commission"), within thirty (30) days after the date
hereof, a registration statement (on Form S-3 and/or S-1, or other
appropriate form of registration statement) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of Purchaser, so as to permit
a public offering and resale of the Securities under the Securities Act by
Purchaser. The Company shall use its best efforts to cause the Registration
Statement to become effective within ninety (90) days of the date hereof or
five (5) days of SEC clearance and will within said five (5) days request
acceleration of effectiveness. The Company will notify Purchaser of the
effectiveness of the Registration Statement within one Trading Day of such
event.
(b) The Company will maintain the Registration Statement or post-effective
amendment filed under this Section 3 hereof effective under the Securities
Act until the earliest of (i) the date that all the Securities have been
disposed of pursuant to the Registration Statement, (ii) the date that all
of the Securities have been sold pursuant to the Registration Statement,
(iii) the date that the Securities may be sold under the provisions of Rule
144 without limitation as to volume, (iv) the date all Securities have been
otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing
a restrictive legend, or (v) the date all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) or any
similar provision then in effect under the Securities Act (the
"Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and costs incurred by
the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The
Purchaser shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being registered
and the fees and expenses of its counsel. The Purchaser and its counsel
shall have a reasonable period, not to exceed three (3) Trading Days, to
review the proposed Registration Statement or any amendment thereto, prior
to filing with the Commission, and the Company shall provide the Purchaser
with copies of any comment letters received from the Commission with
respect thereto within two (2) Trading Days of receipt thereof. The Company
shall make reasonably available for inspection by Purchaser, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by the
Purchaser or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the Company's officers, directors and employees to
supply all information reasonably requested by the Purchaser or any such
underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due
diligence examinations; provided, however, that all records, information
and documents that are designated in writing by the Company, in good faith,
as confidential, proprietary or containing any material non-public
information shall be kept confidential by the Purchaser and any such
underwriter, attorney, accountant or agent (pursuant to an appropriate
confidentiality agreement in the case of the Purchaser, underwriter,
attorney, accountant or agent), unless such disclosure is made pursuant to
judicial process in a court proceeding (after first giving the Company an
opportunity promptly to seek a protective order or otherwise limit the
scope of the information sought to be disclosed) or is required by law, or
such records, information or documents become available to the public
generally or through a third party not in violation of an accompanying
obligation of confidentiality; and provided further that, if the foregoing
inspection and information gathering would otherwise disrupt the Company's
conduct of its business, such inspection and information gathering shall,
to the maximum extent possible, be coordinated on behalf of the Purchaser
and the other parties entitled thereto by one firm of counsel designed by
and on behalf of the majority in interest of Purchaser and other parties.
The Company shall qualify any of the Securities for sale in such states as
the Purchaser reasonably designates and shall furnish indemnification in
the manner provided in Section 6 hereof. However, the Company shall not be
required to qualify in any state which will require an escrow or other
restriction relating to the Company and/or the sellers, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The
Company at its expense will supply the Purchaser with copies of the
Registration Statement and the final prospectus included therein (the
"Prospectus") and other related documents in such quantities as may be
reasonably requested by the Purchaser.
(d) The Company shall not be required by this Section 3 to include the
Purchaser's Securities in any Registration Statement which is to be filed
if, in the opinion of counsel for both the Purchaser and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Purchaser and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144
under the Securities Act.
If at any time or from time to time after the effective date of the
Registration Statement, the Company notifies the Purchaser in writing of the
existence of a Potential Material Event (as defined in Section 3(e) below), the
Purchaser shall not offer or sell any Securities or engage in any other
transaction involving or relating to Securities, from the time of the giving of
notice with respect to a Potential Material Event until the Purchaser receives
written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material Event
(the "Suspension Period"); provided, however, that, if a Suspension Period
occurs during any periods commencing on a Trading Day a Draw Down Notice is
deemed delivered and ending ten (10) Trading Days following the end of the
corresponding Draw Down Pricing Period, then the Company must compensate the
Purchaser for any net decline in the market value of any Securities committed to
be purchased by the Purchaser through the end of such Suspension Period. Net
decline shall be calculated as the difference between the highest VWAP during
the applicable Suspension Period and the VWAP on the Trading Day immediately
following a properly delivered notice to the Purchaser that such Suspension
Period has ended. The Company must give Purchaser notice in writing at least two
(2) Trading Days prior to the first day of the blackout period, if lawful to do
so.
(e) Potential Material Event" means any of the following:
(i) the possession by the Company of material information that is
not ripe for disclosure in a registration statement, as determined in
good faith by the Chief Executive Officer or the Board of Directors of
the Company or that disclosure of such information in the Registration
Statement would be detrimental to the business and affairs of the
Company; or
(ii) any material engagement or activity by the Company which
would, in the good faith determination of the Chief Executive Officer
or the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by
the Chief Executive Officer or the Board of Directors of the Company
that the Registration Statement would be materially misleading absent
the inclusion of such information; or
(iii) pursuant to applicable law, a fundamental change that
requires the Company to file a post-effective amendment to the
Registration Statement, change the plan of distribution to the
Prospectus, or must update the information included in the Prospectus
pursuant to Section 10(a)(3) of the Securities Act.
Section 4. Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Purchaser and proposed manner of sale of
the Registrable Securities required to be disclosed in the Registration
Statement) and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable Securities and
entering into and performing its obligations under any underwriting agreement,
if the offering is an underwritten offering, in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering. The
Purchaser shall consent to be named as an underwriter in the Registration
Statement. Purchaser acknowledges that in accordance with current Commission
policy, the Purchaser will be named as the underwriter of the Securities in the
Registration Statement.
Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Registrable Securities under the Securities Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible, subject
to the Purchaser's assistance and cooperation as reasonably required:
(a) prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Purchaser of
such Registrable Securities shall desire to sell or otherwise dispose of
the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act) and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (B) the Prospectus, and any amendment or supplement thereto,
does not at any time during the Effectiveness Period include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(b) prior to the filing with the Commission of any Registration Statement
(including any amendments thereto) and the distribution or delivery of the
Prospectus (including any supplements thereto), provide draft copies
thereof to the Purchaser and reflect in such documents all such comments as
the Purchaser (and its counsel) reasonably may propose and (ii) furnish to
the Purchaser such numbers of copies of the Prospectus including a
preliminary prospectus or any amendment or supplement to the Prospectus, as
applicable, in conformity with the requirements of the Securities Act, and
such other documents, as the Purchaser may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities;
(c) register and qualify the Registrable Securities covered by the Registration
Statement under the applicable blue sky laws (subject to the limitations
set forth in Section 3(c) above), and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Purchaser to
consummate the public sale or other disposition in such jurisdiction of the
Registrable Securities, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
(d) list such Registrable Securities on the Principal Market, and any other
exchange on which the Common Stock of the Company is then listed, if the
listing of such Registrable Securities is then permitted under the rules of
such exchange or the Nasdaq Stock Market;
(e) notify the Purchaser at any time when the Prospectus is required to be
delivered under the Securities Act, of the happening of any event of which
it has knowledge as a result of which the Prospectus, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and the Company shall prepare and file a curative amendment or
curative supplement under Section 5(a) as quickly as commercially possible
and the period beginning on the date of notice until the curative amendment
is effective or curative supplement is provided to the Purchaser shall be
deemed a Suspension Period and the Company shall compensate the Purchaser
as set forth in Section 3(d) herein;
(f) as promptly as practicable after becoming aware of such event, notify the
Purchaser who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission or any state authority of any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible
time and take all lawful action to effect the withdrawal, rescission or
removal of such stop order or other suspension;
(g) take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Purchaser of its Registrable Securities
in accordance with the intended methods therefor provided in the Prospectus
which are customary for issuers to perform under the circumstances;
(h) in the event of an underwritten offering, promptly include or incorporate
in a prospectus supplement or post-effective amendment to the Registration
Statement such information as the managing underwriters reasonably agree
should be included therein and to which the Company does not reasonably
object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such prospectus supplement or
post-effective amendment; and
(i) maintain a transfer agent for its Common Stock.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser and each
person, if any, who controls the Purchaser within the meaning of the
Securities Act ("Distributing Purchaser") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees), to which the
Distributing Purchaser may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, or any related preliminary prospectus, the
Prospectus or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, preliminary prospectus, the Prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Purchaser
specifically for use in the preparation thereof. This Section 6(a) shall
not inure to the benefit of any Distributing Purchaser with respect to any
person asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the Distributing
Purchaser failed to send or give (in violation of the Securities Act or the
rules and regulations promulgated thereunder) a copy of the Prospectus to
such person at or prior to the written confirmation to such person of the
sale of such Registrable Securities, where the Distributing Purchaser was
obligated to do so under the Securities Act or the rules and regulations
promulgated thereunder. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Purchaser agrees that it will indemnify and hold harmless
the Company, and each officer, director of the Company or person, if any,
who controls the Company within the meaning of the Securities Act, against
any losses, claims, damages or liabilities (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees) to which the
Company or any such officer, director or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, or any related
preliminary prospectus, the Prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the
extent that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, preliminary
prospectus, the Prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company
by such Distributing Purchaser specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability
which the Distributing Purchaser may otherwise have. Notwithstanding
anything to the contrary herein, the Distributing Purchaser shall not be
liable under this Section 6(b) for any amount in excess of the net proceeds
to such Distributing Purchaser as a result of the sale of Registrable
Securities pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified
party except to the extent of actual prejudice demonstrated by the
indemnifying party. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject
to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation, unless the indemnifying party
shall not pursue the action to its final conclusion. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party is the Distributing Purchaser, the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by
the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Purchaser
and the indemnifying party and the Distributing Purchaser shall have been
advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any
legal defenses which may be available to the Distributing Purchaser (in
which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the Distributing Purchaser, it being
understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Distributing Purchaser,
which firm shall be designated in writing by the Distributing Purchaser and
be approved by the indemnifying party). No settlement of any action against
an indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
All fees and expenses of the indemnified party (including reasonable costs
of defense and investigation in a manner not inconsistent with this Section and
all reasonable attorneys' fees and expenses) shall be paid to the indemnified
party, as incurred, within ten (10) Trading Days of written notice thereof to
the indemnifying party; provided, that the indemnifying party may require such
indemnified party to undertake to reimburse all such fees and expenses to the
extent it is finally judicially determined that such indemnified party is not
entitled to indemnification hereunder.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Purchaser shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Purchaser on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall
any (i) Purchaser be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the net proceeds to
be received by the Purchaser from the sale of the Purchaser's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
Section 8. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be delivered as set forth in the
Purchase Agreement.
Section 9. Assignment. Neither this Agreement nor any rights of the
Purchaser or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement
other than through open-market sales, and (b) upon the prior written consent of
the Company, which consent shall not be unreasonably withheld or delayed in the
case of an assignment to an affiliate of the Purchaser, the Purchaser's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Purchaser) who agrees to be
bound hereby.
Section 10. Counterparts/Facsimile. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 11. Remedies and Severability. The remedies provided in this
Agreement are cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of those that may be hereafter declared
invalid, illegal, void or unenforceable.
Section 12. Conflicting Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Purchasers in this Agreement or otherwise prevents the Company
from complying with all of its obligations hereunder.
Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. The Company and the Purchaser
agree to submit themselves to the in personam jurisdiction of the state and
federal courts situated within the Southern District of the State of New York
with regard to any controversy arising out of or relating to this Agreement. Any
party shall have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. Any party shall have
the right to seek injunctive relief from any court of competent jurisdiction in
any case where such relief is available. Any dispute under this Agreement shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including attorney's fees, from the non-prevailing party.
***************************
[REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date set forth above. PATH 1 NETWORK
TECHNOLOGIES INC.
By: /s/ Xxxxxxxxx X. Xxxx
--------------------------------------
Xxxxxxxxx X. Xxxx, President & CEO
DTKA HOLDINGS LIMITED
By: /s/ Xxxxx Xxxx
--------------------------------------
Name: Xxxxx Xxxx
Title: Director
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of January 17, 2002 by
and among Path 1 Network Technologies Inc., a corporation incorporated under the
laws of Delaware (the "Company"), DTKA Holdings Limited ("Purchaser"), and
Xxxxxxx Xxxxxxxxx LLP with offices at 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000-0000 (the "Escrow Agent"). Capitalized terms used but not defined herein
shall have the meanings set forth in the Common Stock Purchase Agreement
referred to in the first recital.
WHEREAS, the Purchaser will from time to time as requested by the Company,
purchase shares of the Company's Common Stock from the Company as set forth in
that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated
the date hereof between the Purchaser and the Company, which will be issued as
per the terms and conditions contained herein and in the Purchase Agreement; and
WHEREAS, the Company and the Purchaser have requested that the Escrow Agent
hold in escrow and then distribute the initial documents and certain funds which
are conditions precedent to the effectiveness of the Purchase Agreement, and
have further requested that upon each exercise of a Draw Down, the Escrow Agent
hold the relevant documents and the applicable purchase price pending receipt by
Purchaser of the Draw Down Shares;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
1.1. The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 4.2 of the Purchase Agreement.
1.2. At the Initial Closing, the Company shall deliver to the Escrow Agent:
(i) the original executed Registration Rights Agreement in the
form of Exhibit A to the Purchase Agreement;
(ii) the original executed opinion of Xxxxxxx Phleger & Xxxxxxxx
LLP in the form of Exhibit C to the Purchase Agreement;
(iii) the sum of $50,000;
(iv) the original executed Company counterpart of this Escrow
Agreement;
(v) the Original executed Warrant;
(vi) the original executed Company counterpart of the Purchase
Agreement; and
(vii) a warrant issued to Jesup & Xxxxxx Securities Corporation
otherwise identical to the Warrant ("J&L Warrant")
1.3. Upon receipt of the foregoing, and receipt of executed counterparts
from the Purchaser of the Purchase Agreement, the Registration Rights Agreement
and this Escrow Agreement, the Escrow Agent shall wire transfer $50,000 per the
instructions of the Purchaser for Purchaser's legal, administrative and due
diligence costs and expenses and the Escrow Agent shall then arrange to have the
Purchase Agreement, this Escrow Agreement, the Registration Rights Agreement,
the Warrant, the J&L Warrant and the opinion of counsel delivered to the
appropriate parties.
1.4. Wire transfers to the Escrow Agent shall be made as follows:
Chase Manhattan Bank, NA
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 XXX
ABA Routing Number: 000000000
Account Number: 987074342668
Name of Account: Xxxxxxx Xxxxxxxxx LLP Master Escrow
Account
Remark: PNWK
ARTICLE II
TERMS OF THE ESCROW FOR EACH DRAW DOWN
2.1. Each time the Company shall send a Draw Down Notice to the Purchaser
as provided in the Purchase Agreement, it shall send a copy, by facsimile, to
the Escrow Agent.
2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down,
the Purchaser shall send the applicable purchase price of the Draw Down Shares
to the Escrow Agent, which shall promptly, but no later than within one (1)
Trading Day advise the Company in writing that it has received the purchase
price for such Draw Down Shares. The Company shall promptly, but no later than
two (2) Trading Days after receipt of such funding notice from the Escrow Agent,
cause its transfer agent to issue the Draw Down Shares to the Purchaser via
DTC's DWAC system to the account specified by the Purchaser from time to time,
deliver the original executed opinion of the Company's outside counsel in the
form of Exhibit C to the Purchase Agreement and a Form 424(b) supplemental
prospectus to the Escrow Agent. Upon receipt of written confirmation from the
transfer agent or from the Purchaser that such Draw Down Shares have been so
deposited, the opinion and the supplemental prospectus have been so delivered,
the Escrow Agent shall, within one (1) Trading Day wire 95% of the Purchase
Price of the Draw Down per the written instructions of the Company, net of
$1,000 as escrow expenses to the Escrow Agent, and the remaining 5% per the
instructions of Jesup & Xxxxxx Securities Corporation and deliver the opinion
and the supplemental prospectus to the Purchaser.
2.3. In the event that such Draw Down Shares are not in the Purchaser's DTC
account and the opinion and supplemental prospectus are not delivered to the
Purchaser within three (3) Trading Days of the date of the Escrow Agent's
notice, then Purchaser shall have the right to demand, by notice, the return of
the Purchase Price, and the applicable Draw Down Notice shall be deemed
cancelled.
ARTICLE III
MISCELLANEOUS
3.1. No waiver of any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the time
for performance of any other obligation or act.
3.2. All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax or overnight courier, and shall be
deemed received upon receipt thereof, at the addresses set forth in the Purchase
Agreement.
3.3. This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
3.4. This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by their respective agents duly authorized in writing
or as otherwise expressly permitted herein.
3.5. Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
3.6. The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Except as expressly set forth herein, any action
to enforce, arising out of, or relating in any way to, any provisions of this
Escrow Agreement shall be brought in the Federal or state courts of New York,
New York as is more fully set forth in the Purchase Agreement.
3.7. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, Purchaser and the Escrow
Agent.
3.8. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, excepting only its own gross negligence or willful
misconduct, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself)
shall be presumptive evidence of such good faith.
3.9. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
3.10. The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder or hereunder.
3.11. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Purchaser, and may continue to act as legal counsel for the Purchaser, from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent in such capacity as legal counsel for the Purchaser
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Purchaser and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into this Escrow Agreement.
3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
3.13. If the Escrow Agent reasonably requires other or further instruments
in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
3.14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (i) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the escrow funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned by a final order,
decree or judgment of a board of arbitration or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (ii) to deliver the escrow funds and any other
property and documents held by the Escrow Agent hereunder to a state or Federal
court having competent subject matter jurisdiction and located in the State and
City of New York in accordance with the applicable procedure therefor.
3.15. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of the Escrow
Agent hereunder or the transactions contemplated hereby or by the Purchase
Agreement other than any such claim, liability, cost or expense to the extent
the same shall have been determined by final, unappealable judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
*************************
[SIGNATURE XXXX TO ESCROW AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date set forth above. PATH 1 NETWORK TECHNOLOGIES INC.
By: /s/ Xxxxxxxxx X. Xxxx
-------------------------------------------------
Xxxxxxxxx X. Xxxx, President & CEO
DTKA HOLDINGS LIMITED
By: /s/ Xxxxx Xxxx
-------------------------------------------------
Name: Xxxxx Xxxx
Title: Director
ESCROW AGENT:
XXXXXXX XXXXXXXXX LLP
By: /s/ Xxxxx Xxxxxxx
-------------------------------------------------
Name: Xxxxx Xxxxxxx
Title: President
EXHIBIT C
January 17, 2002 Xxxxxxx, Phleger & Xxxxxxxx LLP
00000 Xx Xxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
TEL 000.000.0000
FAX 000.000.0000
xxx.xxxxxxx.xxx
DTKA Holdings Limited
Ladies and Gentlemen:
We have acted as counsel for Path 1 Network Technologies Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale of
warrants to purchase shares of Common Stock and up to $10,000,000.00 worth of
shares of the Company's Class A Common Stock ("Common Stock") pursuant to that
certain Common Stock Purchase Agreement dated January 17, 2002 (the "Purchase
Agreement") between the Company and you. This opinion letter is being rendered
to you pursuant to Section 4.2(e) of the Purchase Agreement. Capitalized terms
not otherwise defined in this opinion letter have the meanings given them in the
Purchase Agreement.
In connection with the opinions expressed herein, we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Purchase
Agreement and upon certificates and statements of government officials and of
officers of the Company. With respect to our opinion in paragraph 7 regarding
issued and outstanding capital stock of the Company, such opinion is based
solely on our review of a certificate of the Company and of the Company's stock
records and resolutions of the Company's Board of Directors relating to such
issuances. We have also examined originals or copies of such corporate documents
or records of the Company as we have considered appropriate for the opinions
expressed herein. We have assumed for the purposes of this opinion letter the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of the documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified, facsimile
or photostatic copies, and the authenticity of the originals of such copies.
In rendering this opinion letter we have also assumed: (A) that the
Purchase Agreement, the Registration Rights Agreement and the Warrant
(collectively, the "Transaction Agreements"), have been duly and validly
executed and delivered by you or on your behalf, that you have the power to
enter into and perform all your obligations thereunder and have taken any and
all necessary corporate, partnership or other relevant action to authorize the
Transaction Agreements, and that the Transaction Agreements constitute valid,
legal, binding and enforceable obligations upon you; (B) that the
representations and warranties made in the Purchase Agreement by you are true
and correct; and (C) that any wire transfers, drafts or checks tendered by you
will be honored.
As used in this opinion letter, the expression "we are not aware" or the
phrase "to our knowledge," or any similar expression or phrase with respect to
our knowledge of matters of fact, means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally responsible
for handling current matters for the Company (and not including any constructive
or imputed notice of any information), and after an examination of documents
referred to herein and after inquiries of certain officers of the Company, no
facts have been disclosed to us that have caused us to conclude that the
opinions expressed are factually incorrect; but beyond that we have made no
factual investigation for the purposes of rendering this opinion letter.
Specifically, but without limitation, we have not searched the dockets of any
courts and we have made no inquiries of securities holders or employees of the
Company, other than such officers. No inference as to our knowledge of the
existence or absence of any fact should be drawn from our representation of the
Company or the rendering of the opinions set forth below.
This opinion letter relates solely to the laws of the State of California,
the General Corporation Law of the State of Delaware and the federal law of the
United States and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering such
laws or opinions of other counsel have not been sought or obtained. Furthermore,
we invite your attention to the fact that the Transaction Agreements state that
they are governed by the laws of the State of New York. We have made no
investigation of New York law nor consulted with counsel admitted to practice
law in the State of New York. We have not examined the question of what law
would govern the interpretation or enforcement of the Transaction Agreements,
and our opinion with regard to the validity, binding nature and enforceability
of the Transaction Agreements is based upon the assumption that the internal
laws of the State of California would govern the provisions thereof.
Based upon our examination of and reliance upon the foregoing and subject
to the limitations, exceptions, qualifications and assumptions set forth below
and except as set forth in the Purchase Agreement or the Disclosure Schedule
thereto, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business and to own, lease
and operate its properties and assets as described in the Company's SEC
Documents. The Company and each subsidiary is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the Company owns or leases property, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter into
and perform its obligations under the Transaction Agreements and to issue
the Shares. The execution and delivery of the Transaction Agreements by the
Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required. Each of the Transaction Agreements (other than
any Warrants to be issued after the signing of the Purchase Agreement
pursuant to the terms of the Purchase Agreement) has been duly executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable by you against the Company in
accordance with its terms.
3. The execution, delivery and performance of the Transaction Agreements by
the Company and the consummation by the Company of the transactions
contemplated thereby, including, without limitation, the issuance of the
Shares, the Warrant and the shares issuable upon exercise of the Warrant
(the "Warrant Shares"), do not and will not (i) result in a violation of
the Company's Charter (the "Charter) or Bylaws (the "Bylaws"); (ii)
conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, any material agreement, indenture, instrument or any "lock-up" or
similar provision of any underwriting or similar agreement to which the
Company is a party that has been included as an exhibit to the Company's
last annual report with the SEC on Form 10-K (the "Last 10-K"); or (iii)
result in a violation of any federal or California law, rule or regulation
applicable to the Company or by which any property or asset of the Company
is bound or affected, except for such violations as would not, individually
or in the aggregate, have a Material Adverse Effect. To our knowledge, the
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
4. When issued and paid for, the Shares and Warrant Shares will be duly and
validly issued, fully paid and nonassessable, and free of (a) any liens,
encumbrances imposed by the Company and (b) preemptive or similar rights
contained in the Charter or Bylaws or, to our knowledge, in any agreement
to which the Company is party.
5. To our knowledge, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as
such, regarding the right or power of the Company to enter into and perform
the Agreements, nor has the Company received any written threat of any such
claims, actions, suits, proceedings, or investigations.
6. To our knowledge, there are no outstanding options, warrants, calls or
commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts,
commitments, understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the SEC Documents or the Agreements.
7. The authorized capital stock of the Company consists of 10,000,000 shares
of Class A common stock, $0.001 par value per share, of which to our
knowledge as of the date hereof, 8,814,226 shares are issued and
outstanding and 20,000,000 shares of class B common stock of which none are
issued and outstanding.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The legality, validity, binding nature and enforceability of the
Company's obligations under the Transaction Agreements may be subject to or
limited by (1) bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer and other similar laws affecting the rights of creditors
generally; (2) general principles of equity (whether relief is sought in a
proceeding at law or in equity), including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the discretion of
any court of competent jurisdiction in awarding specific performance or
injunctive relief and other equitable remedies; and (3) without limiting the
generality of the foregoing, (a) principles requiring the consideration of the
impracticability or impossibility of performance of the Company's obligations at
the time of the attempted enforcement of such obligations, and (b) the effect of
California court decisions and statutes which indicate that provisions of the
Transaction Agreements which permit any of you to take action or make
determinations may be subject to a requirement that such action be taken or such
determinations be made on a reasonable basis in good faith or that it be shown
that such action is reasonably necessary for your protection.
(B) We express no opinion as to the Company's or this transaction's
compliance or noncompliance with applicable federal or state antifraud or
antitrust statutes, laws, rules and regulations or Section 721 (as amended by
Section 5021 of the Omnibus Trade and Competitiveness Act of 1988: the so-called
"Exon-Xxxxxx" provision) of the Defense Production Act of 1950 and the
regulations thereunder.
(C) We express no opinion concerning the past, present or future fair
market value of any securities.
(D) We express no opinion as to the enforceability under certain
circumstances of any provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or negligent
acts, or where indemnification or contribution is contrary to public policy or
prohibited by law. In this regard, we advise you that in the opinion of the
Securities and Exchange Commission, provisions regarding indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, are against public policy
and are therefore unenforceable.
(E) We express no opinion as to the enforceability under certain
circumstances of any provisions prohibiting waivers of any terms of the
Transaction Agreements other than in writing, or prohibiting oral modifications
thereof or modification by course of dealing. In addition, our opinions are
subject to the effect of judicial decisions which may permit the introduction of
extrinsic evidence to interpret the terms of written contracts such as the
"Transaction Agreements."
(F) We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, federal law or equitable
principle which provides that a court may refuse to enforce, or may limit the
application of, a contract or any clause thereof which the court finds to have
been unconscionable at the time it was made or contrary to public policy.
(G) We express no opinion as to the effect of Sections 1203 and 1102(3) of
the California Uniform Commercial Code or any other California law, federal law
or equitable principle, providing for an obligation of good faith in the
performance or enforcement of contracts and prohibiting disclaimer of such
obligation.
(H) Our opinion in paragraph 3 is limited to laws and regulations normally
applicable to transactions of the type contemplated in the Transaction
Agreements and does not extend to licenses, permits and approvals necessary for
the conduct of the Company's business. In addition and without limiting the
previous sentence, we express no opinion herein with respect to the effect of
any land use, safety, hazardous material, environmental or similar law, or any
local or regional law. Further, we express no opinion as to the effect of or
compliance with any state or federal laws or regulations applicable to the
transactions contemplated by the Transaction Agreements because of the nature of
the business of any party thereto other than the Company. Also, we express no
opinion with respect to any patent, copyright, trademark or other intellectual
property matter, or as to the statutes, regulations, treaties or common laws of
any nation, state or jurisdiction with regard thereto.
(I) In connection with our opinion in paragraph 4 relating to the
agreements attached as exhibits in the Last 10-K, we have not reviewed, and
express no opinion on, (i) financial covenants or similar provisions requiring
financial calculations or determinations to ascertain whether there is any such
conflict or (ii) provisions relating to the occurrence of a "material adverse
event" or words of similar import. In addition, our opinion relating to the
agreements attached as exhibits in the Last 10-K is subject to the effect of
judicial decisions which may permit the introduction of extrinsic evidence to
interpret the terms of written contracts or allow non-written modifications of
written contracts. Moreover, to the extent that any of the agreements attached
as exhibits in the Last 10-K are governed by the laws of any jurisdiction other
than the State of California our opinion relating to those agreements is based
solely upon the plain meaning of their language without regard to interpretation
or construction that might be indicated by the laws governing those agreements.
(J) We express no opinion as to your compliance with any Federal or state
law relating to your legal or regulatory status or the nature of your business.
(K) We express no opinion as to the compliance of the Company or the sale of the
Common Stock to Purchaser with the provisions of the Small Business Investment
Act of 1958 or the Investment Company Act of 1940.
(L) We express no opinion as to the effect of subsequent issuances of
securities of the Company, to the extent that further issuances may be
integrated with the Closings contemplated by the Purchase Agreement and to the
extent that notwithstanding its reservation of shares upon the exercise of the
Warrants, the Company may issue so many shares of Common Stock that there are
not enough remaining authorized but unissued shares of Common Stock to issue the
full amount of Shares upon the exercise of the Warrants.
(M) Our opinions with regard to each respective Transaction Agreement do
not extend to other agreements or instruments (or forms of agreements or
instruments) which may be attached thereto as exhibits.
(N) We express no opinion as to: (1) The enforceability under certain
circumstances of provisions expressly or by implication waiving broadly or
vaguely stated rights, unknown future rights, or defenses to obligations or
rights granted by law, when such waivers are against public policy or prohibited
by law; (2) The enforceability under certain circumstances of provisions to the
effect that rights or remedies may be exercised without notice, or that failure
to exercise or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy; (3) The enforceability under certain
circumstances of provisions to the effect that rights or remedies are not
exclusive, that every right or remedy is cumulative and may be exercised in
addition to or with any other right or remedy, or that election of a particular
remedy or remedies does not preclude recourse to one or more remedies; (4) Any
provision providing for the exclusive jurisdiction of a particular court or
purporting to waive rights to trial by jury, service of process or objections to
the laying of venue or to forum on the basis of forum non conveniens, in
connection with any litigation arising out of or pertaining to the Transaction
Agreements; (5) Section 8.9 of the Stock Purchase Agreement and Section 14 of
the Registration Rights Agreement; (6) Section 8.9 of the Stock Purchase
Agreement and Section 14 of the Registration Rights Agreement to the extent that
it purports to exclude conflict of law principles under applicable state law; or
(7) The effect of any applicable state law, federal law or equitable principles
which limit the amount of attorneys' fees that can be recovered under certain
circumstances.
This opinion letter is rendered as of the date first written above solely
for your benefit in connection with the Purchase Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company. We
assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
XXXXXXX, PHLEGER & XXXXXXXX LLP
EXHIBIT D
DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE
Path 1 Network Technologies Inc.
The undersigned hereby certifies, with respect to shares of Common Stock of
Path 1 Network Technologies Inc. (the "Company") issuable in connection with
this Draw Down Notice and Compliance Certificate dated _____________ (the
"Notice"), delivered pursuant to the Common Stock Purchase Agreement dated as of
January 17, 2002 (the "Agreement"), as follows:
1. The undersigned is the duly appointed Chief Executive Officer
of the Company.
2. Unless as otherwise set forth in a Disclosure Schedule
attached hereto, the representations and warranties of the Company set
forth in the Agreement are true and correct in all material respects
as though made on and as of the date hereof and all SEC Documents are
as represented in Section 2.1 of the Agreement.
3. The Company has performed in all material respects all
covenants and agreements to be performed by the Company on or prior to
the date of this Draw Down Notice and has complied in all material
respects with all obligations and conditions contained in the
Agreement.
4. The Investment Amount is $___________.
5. The Threshold Price, if any, is $__________.
6. The Draw Down Pricing Period shall commence on ____________.
7. The number of Pricing Days shall be _______.
The undersigned has executed this Certificate this ____ day of
________, _____.
PATH 1 NETWORK TECHNOLOGIES INC.
By: _______________________________
Name:
EXHIBIT E
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT" OR
ANY OTHER APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PURSUANT TO REGULATION D AND
SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON
EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT OR ANY APPLICABLE STATE LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT" OR
ANY OTHER APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PURSUANT TO REGULATION D AND
SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON
EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT OR ANY APPLICABLE STATE LAWS.
STOCK PURCHASE WARRANT
To Purchase 61,131 Shares of Common Stock of
PATH 1 NETWORK TECHNOLOGIES INC.
THIS CERTIFIES that, for value received, DTKA Holdings Limited (the
"Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the
date hereof (the "Initial Exercise Date") and on or prior to the close of
business on January 18, 2002 (the "Termination Date") but not thereafter, to
subscribe for and purchase from Path 1 Network Technologies Inc., a corporation
incorporated in the State of Delaware (the "Company"), up to 61,131 shares (the
"Warrant Shares") of Common Stock, $0.001 par value, of the Company (the "Common
Stock"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be $5.6436 (subject to adjustment hereunder). The
Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. In the event of
any conflict between the terms of this Warrant and the Common Stock Purchase
Agreement dated as of January 17, 2002, pursuant to which this Warrant has been
issued (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all the Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).
3. Exercise of Warrant.
(a) Except as provided in Section 4 herein, exercise of the purchase
rights represented by this Warrant may be made at any time or times on or
after the Initial Exercise Date, and before the close of business on the
Termination Date by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company
(or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder hereof at the address of such
Holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank, or by means of a cashless
exercise as provided herein, the Holder shall be entitled to receive a
certificate for the number of Warrant Shares so purchased. Certificates for
shares purchased hereunder shall be delivered to the Holder within 5
Trading Days after the date on which this Warrant shall have been exercised
as aforesaid. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any,
pursuant to Section 5 prior to the issuance of such shares, have been paid.
If the Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 3(a) by the fifth
Trading Day after the date of exercise, then the Holder will have the right
to rescind such exercise. In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by the
eighth Trading Day after the date of exercise, and if after such eighth
Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by
the Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of
Warrant Shares that the Company was required to deliver to the Holder in
connection with the exercise at issue times (B) the closing bid price of
the Common Stock at the time of the obligation giving rise to such purchase
obligation, and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely complied
with its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with a market price on the date of exercise totaled $10,000, under
clause (1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of
the Buy-In. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates
representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
(b) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
(c) This Warrant shall also be exercisable by means of a "cashless
exercise" in which the Holder shall be entitled to receive a certificate
for the number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of
Common Stock on the five (5) Trading Days immediately preceding
the date of such election on the Nasdaq Stock Market, or if the
Common Stock is not traded on the Nasdaq Stock Market, then the
Principal Market in terms of volume;
(B) = the Exercise Price of this Warrant; and
(X) = the number of Warrant Shares issuable upon exercise of the
this Warrant in accordance with the terms of this Warrant and the
notice of exercise.
(d) Notwithstanding anything herein to the contrary, in no event shall
the Holder be permitted to exercise this Warrant for Warrant Shares to the
extent that (x) the number of shares of Common Stock owned by such Holder
(other than Warrant Shares issuable upon exercise of this Warrant) plus,
(y) the number of Warrant Shares issuable upon exercise of this Warrant,
would be equal to or exceed 9.9% of the number of shares of Common Stock
then issued and outstanding, including shares issuable upon exercise of
this Warrant held by the Holder after application of this Section 3(d). As
used herein, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act. To the extent that the limitation
contained in this Section 3(d) applies, the determination of whether this
Warrant is exercisable (in relation to other securities owned by the
Holder) and of which a portion of this Warrant is exercisable shall be in
the sole discretion of the Holder, and the submission of a Notice of
Exercise shall be deemed to be the Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of the
Holder to exercise this Warrant into Warrant Shares at such time as such
exercise will not violate the provisions of this Section 3(d). The
provisions of this Section 3(d) may be waived by the Holder of this Warrant
upon, at the election of the Holder, with 61 days' prior notice to the
Company, and the provisions of this Section 3(d) shall continue to apply
until such 61st day (or such later date as may be specified in such notice
of waiver). No exercise of this Warrant in violation of this Section 3(d)
but otherwise in accordance with this Warrant shall affect the status of
the Warrant Shares issued upon such exercise as validly issued, fully-paid
and nonassessable.
(e) Piggyback Registration Rights. In addition to the registration
rights granted pursuant to the Registration Rights Agreement, the Company
shall be obligated to register the Warrant Shares for resale by the Holder
on the first registration statement that the Company files with the
Commission after the Initial Exercise Date. Any registration statement
filed pursuant to this Agreement shall be maintained and remain effective
during the term of this Warrant. In the event that the Company fails to
register the Warrant Shares for resale as set forth herein, then the
Exercise Price of this Warrant shall decrease by $0.25 for each
registration statement filed with the Commission that does not also
register the Warrant Shares.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the holder of this
Warrant or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. Closing of Books. Other than in the ordinary course of business, the
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws,
transfer of this Warrant and all rights hereunder, in whole or in part,
shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially
in the form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. In the event that the Holder wishes to transfer a
portion of this Warrant, the Holder shall transfer at least 50,000 shares
underlying this Warrant to any such transferee. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled.
A Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
Notwithstanding the above, the Holder shall not transfer this Warrant or
any rights hereunder to any person or entity which is then engaged in a
business that is in the reasonable judgment of the Company is in direct
competition with the Company.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued, signed by Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section
7.
(d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price or by means of a cashless exercise, the Warrant
Shares so purchased shall be and be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares, Stock
Splits, etc. The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following. In case the Company shall (i)
pay a dividend in shares of Common Stock or make a distribution in shares of
Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof. Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the Holder
shall thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant Share
or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares purchasable
pursuant hereto immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of Warrant Shares for which this Warrant is exercisable immediately
prior to such event. In case of any such reorganization, reclassification,
merger, consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of Warrant Shares for which
this Warrant is exercisable which shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 12. For purposes of this Section
12, "common stock of the successor or acquiring corporation" shall include stock
of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in the absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; then, in any one or more of such cases, the
Company shall give to Holder (i) at least 20 days' prior written notice of
the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any
such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and
the time, if any such time is to be fixed, as of which the holders of
Common Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 17(d).
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its corporate charter 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 actions as may
be necessary or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares receivable upon the exercise of
this Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares upon the exercise of this Warrant,
and (c) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the
laws of California, without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by
Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any Holder or holder of Warrant Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(i) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: January 17, 2002
PATH 1 NETWORK TECHNOLOGIES INC.
By: /s/ Xxxxxxxxx X. Xxxx
---------------------------------------
Xxxxxxxxx X. Xxxx, President & CEO
To: Path 1 Network Technologies Inc.
(1) The undersigned hereby elects to purchase ________ Warrant Shares (the
"Common Stock"), of Path 1 Network Technologies Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
----------------------------------------
The Warrant Shares shall be delivered to the following address:
----------------------------------------
----------------------------------------
----------------------------------------
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ________________________
NOTICE OF CASHLESS EXERCISE
To: Path 1 Network Technologies Inc.
(1) The undersigned hereby elects to convert by cashless
exercise the right to purchase ________ Warrant Shares (the "Exercised Rights"),
of Path 1 Network Technologies Inc. into shares of Common Stock pursuant to the
terms of the attached Warrant. Pursuant to Section 3 of the Warrant, no payment
will be tendered.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
o Exercise Date: ____________
o Date of Trading Day preceding Exercise Date: ____________
o Average of the high ($________) and low ($________) trading prices per
share of Common Stock for the five (5) Trading Days immediately preceding
the Exercise Date: $________ ("A")
o Exercise Price of the Warrants: $________ ("B")
o Exercised Rights: ________ ("X")
o Calculation of quotient [((A-B) * (X)) / A]: ________. A certificate shall
be issued for the number of shares equal to the whole number portion of
this quotient, which is ________. The Company shall pay a cash adjustment
in respect of the fractional portion of this quotient in an amount equal to
the product of the fractional portion of this quotient and the Exercise
Price, which product is ________.
------------------------------
Signature Date
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the
warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
whose address is
------------------------------------------------
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT F
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Article 2 of the
Common Stock Purchase Agreement dated January __, 2002 by and among Path
1Network Technologies Inc. and the Purchaser listed in the Common Stock Purchase
Agreement attached thereto (the "Agreement"). The section numbers in this
Schedule of Exceptions correspond to the section numbers in the Agreement;
however, any information disclosed herein under any section number shall be
deemed to be disclosed and incorporated into any other section number under the
Agreement where such disclosure would otherwise be appropriate. Any terms
defined in the Agreement shall have the same meaning when used in this Schedule
of Exceptions as when used in the Agreement unless the context otherwise
requires.
Nothing herein constitutes an admission of any liability or obligation on
the part of the Company nor an admission against the Company's interest. The
inclusion of any schedule herein or any exhibit hereto should not be interpreted
as indicating that the Company has determined that such an agreement or other
matter is necessarily material to the Company. The Purchaser acknowledges that
certain information contained in these schedules may constitute material
confidential information relating to the Company, which may not be used for any
purpose other than that contemplated in the Agreement. Copies of the agreements
described herein are available upon request of the Company for review by the
Purchaser.
Section 2.1 (c)
Capitalization
The Company had an agreement with an existing shareholder to purchase up to
700,000 shares of the Company's Class A Common Stock ("Common Stock") at US$5.00
per share. For each share purchased, the Company has committed to provide a
warrant for one additional share of Common Stock at US$5.00 per share
exercisable for a two-year period from the time of investment. The shareholder
has defaulted under the agreement and the Company is exploring its legal
alternatives and believes that it is under no duty to accept investment funds
from the shareholder or to deliver equities to him.
The Company has an outstanding obligation to provide 586,109 shares of
Common Stock (originally valued at US$4 million) to Xxxxxxx Xxxxxx, an executive
of the Company, pursuant to a bonus arrangement in his employment agreement with
the Company, which was established as a provision in an agreement when Path 1
purchased Xx. Xxxxxx'x company.
The Company has proposed the establishment of a Company stock purchase plan
to its shareholders in a proxy with written consent.
The Company's Board of Directors voted at a meeting on October 3, 2001, to
offer all holders of options to purchase shares of the Company's Class B Common
Stock a one-time opportunity to exchange those options for options to purchase
shares of Common Stock. All eligible participants accepted the offer to exchange
and the shareholders approved the exchange.
Xxxxxx Technology Corporation has certain rights, including but not limited
to a demand registration right, under terms of their prior investment in the
Company. Further information on Xxxxxx'x rights is available in our SEC filings
and in the Stock Purchase Agreement between Path 1 and Xxxxxx dated April 10,
2000.
The Company engaged Xxxxxxxx and Struggles to find a President and CEO for
Path 1 in 2001. As part of the executive search fee agreement, which resulted in
the engagement of the Company's current CEO, Path 1 agreed to issue a warrant to
H&S based on the candidate's compensation during the first year of employment.
The Company has filed, on Form S-8, its 2000 Stock Option/Stock Issuance
Plan as part of its overall incentive compensation program for its employees.
The plan allows for options on up to 4,260,000 shares of common stock to be
granted to employees, directors and/or consultants of the Company. In addition,
options on approximately 1 million shares of common stock were granted prior to
the Plan's inception.
Section 2.1 (e)
SEC Documents, Financial Statements
The Company has disclosed certain information, which has not been disclosed
publicly by the Company. For example, the Company's Business Plan is not
publicly available but has been disclosed to Purchaser in this due diligence
process. Other related information, such as, sales projection and cash flow
projections are also not a matter of public record.
Section 2.1 (f)
Subsidiaries
The Company maintains several subsidiary organizations, mainly related to
its Silicon Systems business unit (aka Sistolic) as part of its intellectual
property and tax planning with respect to the acquisition of Metar ADC (Xx.
Xxxxxx'x company, referenced above) in October 2000. These subsidiaries are
listed below:
o Path 1 Holdings, Inc., a Delaware company is a wholly owned
subsidiary of Path 1 Network Technologies Inc.
o PNWK Europe C.V., a Netherlands limited partnership is 99 percent
owned by Path 1 Network Technologies Inc. as limited partner and
1 percent owned by Path 1 Holdings, Inc. as general partner.
o Path 1 Network Technologies Europe B.V., a Netherlands limited
liability corporation is wholly owned by PNWK Europe C.V.
o Path 1 Network Technologies Europe B.V. Amsterdam Olanda
Sucursala Bucuresti Romania, a Romanian Branch of the Netherlands
limited liability corporation is wholly owned by Path 1 Network
Technologies Europe B.V.
Section 2.1 (g)
No Material Adverse Effect
Since the date of the most recently filed Form 10-Q, there has been one
specific event that could have a material adverse effect on the Company. On
November 2, 2001, the Company announced a financing arrangement with R&S
Invest/Meeuwi xxXxxxxx for an equity investment of US$3.5 million. The terms of
the financing called for a Note to be paid over six months at about US$0.5
million per month. R&S Invest has failed to make its payments on the note and we
consider them in default of their obligations. Path 1 was counting on those
funds to support operations and is working on obtaining alternative sources of
capital, including this equity line of credit.
Section 2.1 (h)
No Undisclosed Liabilities
The Company has a contingent liability to Metar ADC related to the purchase
of its intellectual property. Two remaining payments of US$250,000 and
US$600,000 may be payable, subject to certain conditions, on October 13, 2002
and October 13, 2003, respectively.
The Company has a liability to Xx. Xxxxxxxx Xxxxxx as a result of the
settlement of a lawsuit. The amount of the liability was determined last week at
100,000 shares of Path 1 common stock and approximately US$54,000 in cash, all
of which had been reserved and accrued by the Company.
As discussed above, the Company has an outstanding obligation to provide
586,109 shares of Common Stock to Xxxxxxx Xxxxxx, an executive of the Company,
pursuant to a bonus arrangement in his employment agreement with the Company and
as a condition of the acquisition of Metar. The obligation was not recorded on
our Form 10-Qs but will be recorded at year-end and will appear in our Form
10-K.
The Company has certain severance agreements with former employees.
Payments to those former employees are in the form of salary continuation and,
as such, are not recorded as liabilities. The remaining amount of those
liabilities is approximately US$150,000 and will be completely paid by July
2002. An additional termination and severance package is being concluded and
should not cost the Company more than US$50,000.
In addition, the Company is subject to certain obligations with respect to
its credit cards. Its agreement with Union Bank of California requires the
retention of certain funds to protect against non-payment of credit card debt
incurred by its employees.
Section 2.1 (i)
No Undisclosed Events or Circumstances
The Company has the aforementioned R&S Invest, Metar ADC and Xxxxxx
agreements/issues.
Section 2.1 (l)
Actions Pending
The Company has engaged a contingency attorney, Xxxxxxx Xxxxxxxx, to seek
recovery under our D&O insurance from National Union Insurance Company. National
Union has refused to reimburse Path 1 for expenses related to the Xxxxxx
lawsuit, which was settled January 2001. An arbitration hearing is scheduled for
mid-February. There are only minimal costs to Path 1.
Section 2.1 (o)
Certain Fees
The Company has engaged Jesup & Xxxxxx in this transaction and they will be
receiving a fee or commission of 5% of each and every draw down.
Section 2.1 (t)
Material Agreement
The Company has an agreement with Xxxxxx Technology Corporation, under
which Path 1 was required to provide a Net Operating System to Xxxxxx. The
Company believes that it has complied with all material aspects of the
Agreement. Xxxxxx is disputing Path 1's full compliance. Xxxxxx is withholding
approximately US$100,000 in payments for products shipped to Xxxxxx and recorded
as revenue by Path 1 in 2001 until the dispute is resolved.
Section 2.1 (w)
Employees
As noted above, the Company is preparing a severance package for its VP
Corporate Development, who resigned this month at the request of the Company,
but who will continue to support the Company in a consulting capacity for some
period of time.
Section 2.1 (x) (viii)
Absence of Certain Developments
Due to the Company's current cash position, introduced by the R&S
Invest/XxXxxxxx default, the key officers of the Company have taken a temporary
20% reduction in salary and the Company's two founders, Xxx Xxxxxxx and Xxxx
Xxxxxx, have deferred 80% of their income, all for a period of up to
approximately three months. Other employees making more than US$70,000 per year
are taking a temporary 12.5% reduction in salary. The shortfall in wages will be
compensated with additional stock options, granted at fair market value. The
employees will receive vested options with a face value of four times the amount
of lost wages.
Section 2.1 (x) (x)
Absence of Certain Developments
The Company has entered into a transaction with a large semiconductor
company for the license of technology and for engineering services. The amount
of the transaction is represented to be to US$5.5 million in cash for services
and follow-on royalty payments. A version of the agreement, incorporating
additional, non-cash related terms, is expected to be signed by the end of
January 2002.
