EXHIBIT 4.5
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and among ADVANCED TECHNOLOGY
INDUSTRIES, INC., a Delaware corporation, with headquarters located at 000
Xxxxxxx Xxxxxx, #00X, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), and the entity
(other than the Company) named on a signature page hereto (as used herein, such
signatory is referred to as the "Lender").
W I T N E S S E T H:
WHEREAS, the Company and the Lender are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration for offers and sales under Regulation D as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section
4(2) of the 1933 Act; and
WHEREAS, the Lender wishes to lend funds to the Company,
subject to and upon the terms and conditions of this Agreement (and acceptance
of this Agreement by the Company, the repayment of which will be represented by
9% Convertible Debentures of the Company (the "Convertible Debentures"), which
Convertible Debentures will be convertible into shares of Common Stock of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
such Convertible Debentures) together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE.
(i) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the undersigned hereby agrees to loan to the
Company, from time to time as set forth herein, the aggregate amount of One
Million Two Hundred Thousand ($1,200,000) Dollars (the "Aggregate Purchase
Price") of which $350,000 (the "Initial Purchase Price") shall be loaned to the
Company on the Initial Closing Date (as defined below). The obligation to repay
the loan from the Lender shall be evidenced by the Company's issuance of one or
more Convertible Debentures to the Lender in such principal amount (the
"Debentures"). Each Debenture (i) shall provide for a conversion price (the
"Conversion Price"), which price may be adjusted from time to as provided in the
Debenture or in the other Transaction Agreements, (ii) shall have the terms and
conditions of, and be substantially in the form attached hereto as ANNEX I and
(iii) shall have such number of Warrants attached as provided in Section 4(f)
below. The loan to be made by the Lender and the issuance of the Debentures and
Warrants to the Lender are sometimes referred to herein and in the other
Transaction Agreements as the purchase and sale of the Debentures and Warrants.
(ii) The applicable Purchase Price to be paid by the Lender
shall be equal to the face amount of the Debentures being purchased on the
relevant Closing Date (as defined below) and shall be payable in United States
Dollars.
b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.
(ii) "Certificates" means the Debentures and the Warrants,
each duly executed by the Company and issued on the relevant Closing Date (as
defined below) in the name of the Lender.
(iii) "Closing Date" means each of the Initial Closing Date,
the Second Closing Date and the Third Closing Date, as the case may be.
(iv) "Closing Price" means the closing bid price during
regular trading hours of the Common Stock (in U.S. Dollars) on the Principal
Trading Market, as reported by the Reporting Service.
(v) "Company Control Person" means each current director,
executive officer, promoter, and such other Persons as may be deemed in control
of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934
Act (as defined below).
(vi) "Company Securities" means shares of Common Stock or
securities convertible into and/or rights exercisable for the issuance of
shares of Common Stock.
(vii) "Conversion Shares" means the shares of Common Stock
issuable upon conversion of the Debentures (including, if relevant, accrued
interest on the Debentures so converted).
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(viii) "Disclosure Letter" means a letter dated the date
hereof from the Company to the Lender arranged in sections corresponding to the
identified Sections of this Agreement; provided that any matter set forth in
any section of the Disclosure Letter shall, unless the context otherwise
requires, be deemed set forth for all purposes of the Disclosure Letter.
(ix) "Effective Date" means the effective date of the
Registration Statement.
(x) "Escrow Agent" means the escrow agent identified in the
Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions").
(xi) "Escrow Funds" means the applicable Purchase Price
delivered to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof.
(xii) "Escrow Property" means the Escrow Funds and the
Certificates delivered to the Escrow Agent as contemplated by Section 1(c)
hereof.
(xiii) "Fixed Conversion Price" shall have the meaning
ascribed to it in the Debenture.
(xiv) "Holder" means the Person owning or having the right to
acquire Registrable Securities or any permitted transferee of a Holder.
(xv) "Last Audited Date" means December 31, 2004.
(xvi) "Lender Control Person" means each current director,
executive officer, promoter, and such other Persons as may be deemed in control
of the Lender pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934
Act (as defined below).
(xvii) "Material Adverse Effect" means an event or combination
of events, which individually or in the aggregate, would reasonably be expected
to (w) adversely affect the legality, validity or enforceability of the
Securities or any of the Transaction Agreements, (x) have or result in a
material adverse effect on the results of operations, assets, or financial
condition of the Company and its subsidiaries, taken as a whole, or (y)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Agreements or the transactions
contemplated thereby.
(xviii) "New Transaction" means the sale by the Company of
Securities consummated after the date hereof; provided that a New Transaction
shall not include (1) the issuance of Company Securities upon the exercise or
conversion of options, warrants or convertible securities outstanding on the
date hereof, (2) the sale of the Securities to the Lender, (3) the issuance of
Company Securities to employees or consultants of the Company or its
subsidiaries or (4) the sale of Company Securities set forth on Schedule 1
hereto.
(xix) "Person" means any living person or any entity, such as,
but not necessarily limited to, a corporation, partnership or trust.
(xx) "Principal Trading Market" means the OTC Electronic
Bulletin Board.
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(xxi) "Purchase Price" means each of the Initial Purchase
Price, the Second Purchase Price and the Third Purchase Price, as the case may
be.
(xxii) "Registrable Securities" shall have the meaning
ascribed to it in the Registration Rights Agreement.
(xxiii) "Registration Rights Agreement" means the Registration
Rights Agreement attached hereto as Annex IV.
(xxiv) "Registration Statement" means a registration statement
of the Company under the 1933 Act covering Registrable Securities.
(xxv) "Reporting Service" means Bloomberg LP or if that
service is not then reporting the relevant information regarding the Common
Stock, a comparable reporting service of national reputation selected by the
Holders of more than 50% of the outstanding Debentures at such time and
reasonably acceptable to the Company.
(xxvi) "Securities" means the Debentures, the Warrants, and
the Shares.
(xxvii) "Security Agreement" means the Security Agreement
attached hereto as Annex VIII.
(xxviii) "Shares" means the shares of Common Stock
representing any or all of the Conversion Shares and the Warrant Shares.
(xxvix) "State of Incorporation" means Delaware.
(xxx) "Trading Day" means any day during which the Principal
Trading Market shall be open for business.
(xxxi) "Transaction Agreements" means the Securities Purchase
Agreement, the Debentures, the Joint Escrow Instructions, the Security
Agreement, the Registration Rights Agreement, and the Warrants and includes all
ancillary documents referred to in those agreements.
(xxxii) "Variable Conversion Rate" shall have the meaning
ascribed to it in the Debenture. (xxxiii) "Warrant Shares" means the shares of
Common Stock issuable upon exercise of the Warrants.
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c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Lender shall pay the Lender's applicable Purchase Price by
delivering immediately available good funds in United States Dollars to the
Escrow Agent no later than the date prior to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any event
promptly following payment by the Lender to the Escrow Agent of the applicable
Purchase Price, the Company shall deliver the Certificates, each duly executed
on behalf of the Company and issued in the name of the Lender, to the Escrow
Agent.
(iii) By signing this Agreement, the Lender and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. ADDITIONAL PURCHASE. The Company shall send (i) a notice to the
Lender of the anticipated filing date of the Registration Statement (the "Filing
Date") at least five days prior to such anticipated Filing Date (the "Filing
Date Notice) and (ii) a notice to the Lender of the anticipated Effective Date
at least five days prior to such anticipated Effective Date (the "Effective Date
Notice", and together with the Filing Date Notice, the "Additional Closing Date
Notices"). Following the receipt of the Filing Date Notice, subject to the
conditions set forth in Sections 6, 7 and 8, the Lender shall be obligated to
loan to the Company $250,000 (the "Second Purchase Price") on the same terms and
conditions as set forth in the Transaction Agreements (including having such
number of Warrants attached as provided in Section 4(f) below); provided that
the closing for such loan must occur at least three days prior to such
anticipated Filing Date (such third business day, the "Second Closing Date").
Following the receipt of the Effective Date Notice, subject to the conditions
set forth in Sections 6, 7 and 8, the Lender shall be obligated to loan to the
Company $600,000 (the "Third Purchase Price") on the same terms and conditions
as set forth in the Transaction Agreements (including having such number of
Warrants attached as provided in Section 4(f) below); provided that the closing
for such loan must occur at least three days prior to such anticipated Effective
Date (such third business day, the "Third Closing Date" and, together with the
Second Closing Date, the "Additional Closing Dates"). The Company and the Lender
shall each use reasonable efforts to cause the closing of such loans to occur on
or prior to the applicable Additional Closing Date.
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Lender represents and warrants to, and covenants and
agrees with, the Company as follows:
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a. Without limiting the Lender's right to sell the Shares
pursuant to a Registration Statement or otherwise to sell any of the Securities
in compliance with the 1933 Act, the Lender is purchasing the Securities and
will be acquiring the Shares for its own account for investment only and not
with a view towards the public sale or distribution thereof and not with a view
to or for sale in connection with any distribution thereof.
b. The Lender is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the loss of the entire Aggregate
Purchase Price.
c. All subsequent offers and sales of the Securities by the
Lender shall be made pursuant to registration of the Shares under the 1933 Act
or pursuant to an exemption from registration.
d. The Lender understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
e. The Lender and its advisors, if any, have been furnished
with or have been given access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities and the offer of the Shares which have been requested by
the Lender, including those set forth on ANNEX V hereto. The Lender and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Lender has also
had the opportunity to obtain and to review the Company's filings on XXXXX
listed on ANNEX VII hereto (the documents listed on such Annex VII, to the
extent available on XXXXX or otherwise provided to the Lender as indicated on
said Annex VII, collectively, the "Company's SEC Documents").
f. The Lender understands that its investment in the
Securities involves a high degree of risk.
g. The Lender hereby represents that, in connection with its
purchase of the Securities, it has not relied on any statement or representation
by the Company or any of their respective officers, directors and employees or
any of their respective attorneys or agents, except as specifically set forth
herein.
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h. The Lender understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
i. This Agreement and the other Transaction Agreements to
which the Lender is a party, and the transactions contemplated thereby, have
been duly and validly authorized, executed and delivered on behalf of the Lender
and are valid and binding agreements of the Lender enforceable in accordance
with their respective terms, subject as to enforceability to general principles
of equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
j. The Lender has taken no action which would give rise to any
claim by any Person for brokerage commission, finder's fees or similar payments
by the Company relating to this Agreement or the transactions contemplated
hereby. The Company shall have no obligation with respect to such fees or with
respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this paragraph that may be due in connection with the
transactions contemplated hereby. The Lender shall indemnify and hold harmless
each of the Company, its employees, officers, directors, agents, and partners,
and their respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and expenses
suffered in respect of any such claimed or existing fees, as and when incurred.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Lender as of the date hereof and as of each Closing Date that,
except as otherwise provided in the Disclosure Letter hereto or in the Company's
SEC Documents:
a. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no
preemptive rights of any shareholder of the Company, as such, to acquire the
Debentures, the Warrants or the Shares. No party other than the Lender has a
currently exercisable right of first refusal which would be applicable to any or
all of the transactions contemplated by the Transaction Agreements.
b. STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Common Stock is quoted on the Principal Trading Market. The Company
has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such quotation on the Principal Trading
Market, and the Company has maintained all requirements on its part for the
continuation of such quotation.
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c. AUTHORIZED SHARES. The authorized capital stock of the
Company consists of (i) 800,000,000 shares of Common Stock, $0.0001 par value
per share, of which approximately 288,209,971 shares were outstanding as of
March 23, 2006, and (ii) 1,000,000 shares of Preferred Stock. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid. The Company has sufficient authorized and unissued shares of
Common Stock as may be necessary to effect the issuance of the Shares. All of
the outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable. The Shares have been
duly authorized and, when issued upon conversion of, or as interest on, the
Debentures or upon exercise of the Warrants, each in accordance with its
respective terms, will be duly and validly issued, fully paid and non-assessable
and, except to the extent, if any, provided by the law of the State of
Incorporation, will not subject the Holder thereof to personal liability by
reason of being such Holder.
d. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each
of the other Transaction Agreements, and the transactions contemplated thereby,
have been duly and validly authorized by the Company, this Agreement has been
duly executed and delivered by the Company and this Agreement is, and the
Debentures, the Warrants and each of the other Transaction Agreements, when
executed and delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Transaction Agreements by the Company, the
issuance of the Debentures and the Warrants, and the consummation by the Company
of the other transactions contemplated by this Agreement, the Debentures, the
Warrants and the other Transaction Agreements do not and will not conflict with
or result in a breach by the Company of any of the terms or provisions of, or
constitute a default under (i) the certificate of incorporation or by-laws of
the Company, each as currently in effect, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock except as herein set forth, or (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have or result in a Material Adverse
Effect.
f. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the shareholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Lender as contemplated by this Agreement, except for such authorizations,
approvals and consents that have been obtained.
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g. FILINGS. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading
h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been no material adverse change and no Material Adverse Effect, except
as disclosed in the Company's SEC Documents. Since the Last Audited Date, except
as disclosed in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any material debts owed to the Company by any third party or material
claims of the Company against a third party, except in the ordinary course of
business consistent with past practices; (v) 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 existing business; (vi)
made any increases in employee compensation, except in the ordinary course of
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
i. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions and other facts known to the public
generally or as disclosed in the Company's SEC Documents) that has not been
disclosed in writing to the Lender that would reasonably be expected to have or
result in a Material Adverse Effect.
j. ABSENCE OF LITIGATION. Except as disclosed in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company before or by any
governmental authority or nongovernmental department, commission, board, bureau,
agency or instrumentality or any other person, wherein an unfavorable decision,
ruling or finding would have a Material Adverse Effect or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements. The
Company is not aware of any valid basis for any such claim that (either
individually or in the aggregate with all other such events and circumstances)
could reasonably be expected to have a Material Adverse Effect. Except as
disclosed in the Company's SEC Documents, there are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse Effect.
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k. ABSENCE OF EVENTS OF DEFAULT. Except as disclosed in the
Company's SEC Documents, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a Material Adverse
Effect.
l. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR
EVENTS. To the knowledge of the Company, none of the following has occurred
during the past five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property
of such Company Control Person, or any partnership in which he was a
general partner at or within two years before the time of such filing,
or any corporation or business association of which he was an executive
officer at or within two years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal
proceeding or is a named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(3) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of
any court of competent jurisdiction, permanently or temporarily
enjoining him from, or otherwise limiting, the following activities:
(i) acting, as an investment advisor,
underwriter, broker or dealer in securities,
or as an affiliated person, director or
employee of any investment company, bank,
savings and loan association or insurance
company, as a futures commission merchant,
introducing broker, commodity trading
advisor, commodity pool operator, floor
broker, any other Person regulated by the
Commodity Futures Trading Commission
("CFTC") or engaging in or continuing any
conduct or practice in connection with such
activity;
(ii) engaging in any type of business practice;
or
(iii) engaging in any activity in connection with
the purchase or sale of any security or
commodity or in connection with any
violation of federal or state securities
laws or federal commodities laws;
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(4) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of
any federal or state authority barring, suspending or otherwise
limiting for more than 60 days the right of such Company Control Person
to engage in any activity described in paragraph (3) of this item, or
to be associated with Persons engaged in any such activity; or
(5) Such Company Control Person was found by a court of
competent jurisdiction in a civil action or by the CFTC or SEC to have
violated any federal or state securities law, and the judgment in such
civil action or finding by the CFTC or SEC has not been subsequently
reversed, suspended, or vacated.
m. PRIOR ISSUES. [Intentionally Omitted]
n. NO UNDISCLOSED LIABILITIES OR EVENTS. To the knowledge of
the Company, the Company has no liabilities or obligations other than those
disclosed in the Transaction Agreements or the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since the Last Audited
Date, or which individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstances has occurred or exists with
respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, 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.
Except as disclosed in the Company's SEC Documents, there are no proposals
currently under consideration or currently anticipated to be under consideration
by the Board of Directors or the executive officers of the Company which
proposal would (X) change the certificate of incorporation or other charter
document or by-laws of the Company, each as currently in effect, with or without
shareholder approval, which change would reduce or otherwise adversely affect
the rights and powers of the shareholders of the Common Stock or (Y) materially
or substantially change the business, assets or capital of the Company,
including its interests in subsidiaries.
o. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time within the past six months made any offer or sales of
any security or solicited any offers to buy any security under circumstances
that would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of
the Debentures may have a dilutive effect on the ownership interests of the
other shareholders (and Persons having the right to become shareholders) of the
Company. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
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they have such a potential dilutive effect. The board of directors of the
Company has concluded, in its good faith business judgment that such issuance is
in the best interests of the Company. The Company specifically acknowledges that
its obligation to issue the Shares upon conversion of the Debentures and upon
exercise of the Warrants is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company, and the Company will honor every Notice of
Conversion (as defined in the Debentures) relating to the conversion of the
Debentures, and every Notice of Exercise (as contemplated by the Warrants),
unless the Company is subject to an injunction (which injunction was not sought
by the Company) prohibiting the Company from doing so.
r. TRADING IN SECURITIES. The Company specifically
acknowledges that, except to the extent specifically provided herein or in any
of the other Transaction Agreements (but limited in each instance to the extent
so specified), the Lender retains the right (but are not otherwise obligated) to
buy, sell, engage in hedging transactions or otherwise trade in the securities
of the Company, including, but not necessarily limited to, the Securities, at
any time before, contemporaneous with or after the execution of this Agreement
or from time to time, but only, in each case, in any manner whatsoever permitted
by applicable federal and state securities laws.
s. FEES TO BROKERS, FINDERS AND OTHERS. Except for payment of
fees to Persons previously disclosed to the Lender, an Application Fee of 1% of
the principal amount of each Debenture payable to the Lender and a Closing Fee
of 4% of the principal amount of each Debenture payable to the Lender, payment
of which, in each case, is the sole responsibility of the Company, the Company
has taken no action which would give rise to any claim by any Person for
brokerage commission, finder's fees or similar payments by the Lender relating
to this Agreement or the transactions contemplated hereby. The Lender shall have
no obligation with respect to such fees or with respect to any claims made by or
on behalf of other Persons for fees of a type contemplated in this paragraph
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless each of the Lender, its employees,
officers, directors, agents, and partners, and their respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Lender acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Lender shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
12
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Lender acknowledges and agrees
that, until such time as the Common Stock has been registered under the 1933 Act
and sold in accordance with an effective Registration Statement or otherwise in
accordance with another effective registration statement, the certificates and
other instruments representing any of the Securities (including the Shares)
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. FILINGS. The Company undertakes and agrees to make all
necessary filings required to be made by the Company in connection with the sale
of the Debentures and Warrants to the Lender under any United States laws and
regulations applicable to the Company, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Lender promptly after such
filing.
d. REPORTING STATUS. So long as the Lender beneficially owns
any of the Securities, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act in a time frame
that permits it to maintain the continued quotation and trading of its Common
Stock (including, without limitation, all Registrable Securities) on the
Principal Trading Market or a listing on the NASDAQ/Small Cap or National
Markets and, to the extent applicable to it, shall take all reasonable action
under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued quotation and
trading of its Common Stock (including, without limitation, all Registrable
Securities) on the Principal Trading Market or a listing on the NASDAQ/Small Cap
or National Markets and, to the extent applicable to it, will comply in all
material respects with the Company's reporting, filing and other obligations
under the by-laws or rules of the Principal Trading Market and/or the National
13
Association of Securities Dealers, Inc., as the case may be, at least through
the date which is thirty (30) days after the later of the date on which all of
the Debentures have been converted or all of the Warrants have been exercised or
have expired.
e. USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Securities) for general
corporate purposes.
f. WARRANTS. The Company agrees to issue to the Lender on the
(i) Initial Closing Date transferable divisible warrants (the "Warrants") for
the purchase of 5,000,000 Shares, (ii) Second Closing Date Warrants for the
purchase of 3,571,428 Shares and (iii) Third Closing Date Warrants for the
purchase of 8,571,428 Shares, in each case at an exercise price of $.07 per
Share. The Warrants will expire on the second annual anniversary of the
Effective Date. The Warrant shall be in the form annexed hereto as ANNEX VI.
g. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, a number of
shares at least equal to the sum of (x) three hundred percent (300%) of the
number of shares of Common Stock issuable as may be required to satisfy the
conversion rights of the Holders of all outstanding Convertible Debentures
(including interest thereon), plus (y) the number of shares issuable upon
exercise of all outstanding Warrants held by all Holders (in each case, whether
such Convertible Debentures or Warrants were originally issued to the Holder,
the Lender or to any other Holder). For the purposes of such calculations, the
Company should assume that all such Debentures were then convertible and all
Warrants were then exercisable without regard to any restrictions which might
limit the Lender's right to convert any of the Convertible Debentures or
exercise any of the Warrants held by any Holder.
h. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties
agrees that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases, holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless the inclusion of such statement
is required, in the opinion of legal counsel for such party, in order for such
party to comply with its disclosure obligations under applicable law. In
furtherance of the foregoing, the Company will provide to the Lender drafts of
the applicable text of any filing intended to be made with the SEC which refers
to the Transaction Agreements or the transactions contemplated thereby as soon
as practicable (but at least two (2) business days before such filing will be
made) and will not include in such filing any statement or statements or other
material to which the other party reasonably objects , unless the inclusion of
such statement is required, in the opinion of legal counsel for such party, in
order for such party to comply with its disclosure obligations under applicable
law. Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
(but any descriptive text accompanying or part of such filing shall be subject
14
to the other provisions of this paragraph). Notwithstanding, but subject to, the
foregoing, the Company intends to file within one business day following the
Initial Closing Date a Current Report on Form 8-K describing the transactions
contemplated by the Transaction Documents.
i. ADDITIONAL COVENANTS OF THE COMPANY. So long as the
Debentures shall be outstanding, the Company shall:
(i) Not assume, guaranty or otherwise, directly or indirectly,
become liable or responsible for the obligations of any other Person (except for
75% or greater owned subsidiaries) for the purpose of paying or discharging the
obligations of such Person unless such guarantees relate to the business of the
Company, are incurred in the ordinary course of its business and do not exceed
in the aggregate $50,000;
(ii) Not declare or pay any cash dividends or authorize or
make any other distribution on any class of equity securities of the Company;
(iii) Not consolidate with or merge with or into any entity or
sell, lease, transfer, exchange or otherwise dispose of any material part of its
properties and assets except in the ordinary course of business; provided,
however, that the Company may engage in any of the foregoing transactions with a
parent or subsidiary of the Company so long as such parent or subsidiary assumes
the obligations of the Company hereunder; and
(iv) Not enter into any agreement or understanding which may,
directly or indirectly, cause or effect a change in "control" as defined in Rule
405 under the 1933 Act of 1933, without the prior written consent of the Lender.
j. CERTAIN AGREEMENTS.
(i) (A) The term "Lower Price Transaction" means a New
Transaction consummated during the period (the "New Transaction
Period") from the Initial Closing Date and continuing through and
including the Final Lock-up Date (as defined below), where (x) either
the lowest fixed purchase price of any shares of Common Stock
contemplated in the New Transaction or the lowest fixed conversion
price of any securities of the Company convertible or exchangeable into
Common Stock which would be applicable under the terms of the New
Transaction is, or by its terms is, below the Fixed Conversion Price or
(y) if such purchase price or conversion price is determined by
multiplying a market price of the Common Stock by a percentage, such
percentage is below the Variable Conversion Rate (the "Lower
Percentage").
(b) The term "Final Lock-up Date" means the date which
is the number of days after the Effective Date equal to the sum of (X)
ninety (90) days, plus (Y) the number of days, if any, during which
sale of Registrable Securities was suspended after the Effective Date.
15
(ii) The Company covenants and agrees that, if there is a
Lower Price Transaction during the New Transaction Period, then;
(A) if such transaction is of the type contemplated by Section
4(j)(i)(A)(x), then the Fixed Conversion Price on any principal amount
of the Debentures which has not been converted as of the relevant date
shall be adjusted to an amount (the "Adjusted Conversion Price") equal
to the lower of (1) the lowest fixed purchase price of any shares of
the Common Stock contemplated in the Lower Price Transaction or (2) the
lowest fixed conversion price of any securities of the Company
convertible or exchangeable into Common Stock which would be applicable
under the terms of the Lower Price Transaction;
(B) if such transaction is of the type contemplated by Section
4(j)(ii)(A)(y), then the Variable Conversion Rate on any principal
amount of the Debentures which has not been converted as of the
relevant date shall be adjusted to an amount equal to the Lower
Percentage; and
(C) the exercise price on all unexercised Warrants (unless the
Adjusted Exercise Price (as defined in the Warrants) is then in effect)
shall be adjusted to equal the lowest of (1) the then existing
applicable exercise price of such Warrant, and (2) the Adjusted
Conversion Price.
(iii) For purposes of this Section 4(j), the conversion price
for which each share of Common Stock shall be deemed to be issued upon issuance
or sale of any securities convertible, exercisable or exchangeable into Common
Stock shall be determined by dividing (x) the total consideration, if any,
received by the Company as consideration for such securities plus the minimum
aggregate of additional consideration, if any, ever payable to the Company upon
the conversion, exercise or exchange of such securities by (y) the maximum
number of shares of Common Stock ever issuable (except pursuant to anti-dilution
provisions associated with such securities on account of events that are unknown
on such date) upon conversion, exercise or exchange of such securities.
k. AUTHORIZED SHARE INCREASE. So long as the Lender holds any
of the Debentures, if at any time the number of authorized shares of Common
Stock set forth in the certificate of incorporation of the Company is less than
the greater (the "Authorized Minimum") of (i) the sum of, without duplication,
(a) the number of outstanding shares of Common Stock, (b) with respect to
outstanding securities of the Company exercisable or convertible into shares of
Common Stock only at a fixed exercise or conversion price, the number of shares
of Common Stock issuable upon the exercise or conversion of such securities at
such fixed price on the date of issuance of such securities and (c) with respect
to outstanding securities of the Company exercisable or convertible into shares
of Common Stock where such exercise or conversion price may be based on the
market price (or percentage thereof) of the Common Stock, 300% of the number of
shares issuable upon the exercise or conversion of such securities at (x) if
such securities are also exercisable or convertible at a fixed exercise or
16
conversion price, such fixed price on the date of issuance of such securities or
(y) if such securities are not also exercisable or convertible at a fixed
exercise or conversion price, such market price or percentage thereof at the
close of business on the date of issuance of such securities and (ii) the sum
of, without duplication, (a) the number of outstanding shares of Common Stock
and (b) with respect to outstanding securities of the Company exercisable or
convertible into shares of Common Stock, the number of shares of Common Stock
issuable upon the exercise or conversion of such securities at such time, then
the Company shall duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") as soon as practicable thereafter for
the purpose (the "Authorization Proposal") of authorizing a number of shares of
Common Stock such that the number of authorized shares of Common Stock is
greater than the Authorized Minimum. The Board of Directors of the Company shall
recommend approval of the Authorization Proposal and shall include such
recommendation in the proxy statement relating to the Authorization Proposal. If
the stockholders of the Company approve the Authorization Proposal at the
Stockholders Meeting, then the Company shall promptly following the Stockholders
Meeting take all necessary actions to file an amendment to its certificate of
incorporation with the Secretary of State of the State of Delaware to effect the
Authorization Proposal. Notwithstanding the foregoing, if at any time prior to
the Company filing such amendment the Lender ceases to hold any Debentures or
the number of authorized shares of Common Stock set forth in the certificate of
incorporation of the Company is greater than the Authorized Minimum, then the
Company shall not be required to hold the Stockholders Meeting or file such
amendment if such actions have not been taken prior to such time.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give its transfer agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Debentures in
such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Lender or its nominee and in such denominations to be specified
by the Lender in connection with each conversion of the Debentures. Except as so
provided, the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Lender's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Lender provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Lender of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required under the 1933 Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the
Conversion Shares, promptly instruct the Company's transfer agent to issue one
or more certificates for Common Stock without legend in such name and in such
denominations as specified by the Lender.
17
(b) Subject to the provisions of this Agreement, the Company
will permit the Lender to exercise its right to convert the Debentures in the
manner contemplated by the Debentures and to exercise the Warrants in the manner
contemplated by the Warrants.
C. (i) The Company understands that a delay in the issuance of
the Shares beyond the Delivery Date (as defined in the Debenture) could result
in economic loss to the Lender. As compensation to the Lender for such loss, the
Company agrees to pay late payments to the Lender for late issuance of Shares
upon conversion in accordance with the following schedule (where "No. Business
Days Late" refers to the number of Trading Days which is beyond four (4) Trading
Days after the Delivery Date): (9)(91)
Late Payment For Each $10,000
No. Business Days Late of Principal or Interest Being Converted
---------------------- ----------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Late beyond
10 days
_________________
(1) Example: Notice of Conversion is delivered on Monday, April 10, 2006. The
Delivery Date would be Thursday April 13 (the third Trading Day after such
delivery). If the certificate is delivered by Wednesday, April 19 (4 Trading
Days after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on April 20, that is 1 "Business Day Late" in the
table below; if delivered on April 25, that is 4 "Business Days Late" in the
table.
18
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c), the provisions of the immediately
following Section 5(d) of this Agreement and Section 12(c) of the Debenture) for
such delay. Furthermore, in addition to any other remedies which may be
available to the Lender, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock by close of business on the
Delivery Date, the Lender will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company, whereupon the
Company and the Lender shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion; provided, however,
that an amount equal to any payments contemplated by this Section 5(c) which
have accrued through the date of such revocation notice shall remain due and
owing to the Converting Holder (as defined below) notwithstanding such
revocation. Anything in the foregoing provisions of this paragraph (c) to the
contrary notwithstanding, the total amount payable by the Company under this
paragraph (c) shall be reduced by an amount equal to fifty percent (50%) of any
Buy-In Adjustment Amount (as defined below) actually paid by the Company to the
Holder (but not by more than the total amount due without regard to the
provisions of this sentence).
(d) If, by the relevant Delivery Date the Company fails for
any reason to deliver the Shares to be issued upon conversion of a Debenture and
after such Delivery Date, the Holder of the Debentures being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
addition to and not in lieu of the amounts due under Section 5(c) hereof (but in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
(e) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Holder and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
19
(f) The holder of any Debentures shall be entitled to exercise
its conversion privilege with respect to the Debentures notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362 in respect of the conversion of the Debentures.
The Company agrees, without cost or expense to such holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
(g) The Company will authorize its transfer agent to give
information relating to the Company directly to the Lender or the Lender's
representatives upon the request of the Lender or any such representative, to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Lender in connection with a Notice of
Conversion or exercise of a Warrant, or (ii) the number of outstanding shares of
Common Stock of all shareholders as of a current or other specified date. On the
Initial Closing Date, the Company will provide the Lender with a copy of the
authorization so given to the transfer agent.
6. CLOSING DATE.
a. The Initial Closing Date shall occur on the date which is
the first Trading Day after each of the conditions contemplated by Sections 7
and 8 hereof shall have either been satisfied or been waived by the party in
whose favor such conditions run.
b.(i) Each Additional Closing Date shall occur on the date
contemplated by Section 1(d).
(ii) It shall be a condition to the giving of an Additional
Closing Date Notice that (1) the representations and warranties of the Company
contained in Section 3 hereof shall be true and correct in all material respects
and there shall have been no Material Adverse Effect from the Initial Closing
Date through and including the date the Company gives the relevant Additional
Closing Date Notice to the Lender (and the Company's issuance of the Additional
Closing Date Notice shall constitute the Company's making each such
representation and warranty as of such date), (2) the Filing Date shall have
occurred on or prior to May 15, 2006 and (c) the Effective Date shall have
occurred on or prior to 90 days following the Filing Date .
(iii) The Company shall execute the relevant Debentures and
the relevant Warrants and deliver them to the Escrow Agent at least one Trading
Day prior to the Additional Closing Date. The date of issuance of such
Debentures and Warrants shall be left blank and the Company will authorize the
Escrow Agent, upon their release to the Lender, to fill in such date on the
signature date of each such Debenture and Warrant.
(iv) Except as provided in this Section 6 or in Sections 7 and
8 hereof, the closings on the Second Closing Date and the Third Closing Date
shall be conducted upon the same terms and conditions as those applicable to the
Initial Closing Date.
20
c. The Company hereby covenants and agrees that the Company
will issue each Additional Closing Date Notice to the Lender and the Escrow
Agent on a timely basis.
d. Each closing of the purchase and issuance of Debentures and
Warrants shall occur on the relevant Closing Date at the offices of the Escrow
Agent and shall take place no later than 3:00 P.M., New York time, on such day
or such other time as is mutually agreed upon by the Company and the Lender.
e. Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the relevant Escrow Funds to the
Company and to release the other relevant Escrow Property on the relevant
Closing Date upon satisfaction of the conditions set forth in Sections 7 and 8
hereof and as provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell
the Debentures and the Warrants to the Lender pursuant to this Agreement on the
relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Lender;
b. Delivery by the Lender to the Escrow Agent of good funds as
payment in full of an amount equal to the applicable Purchase Price for the
Securities in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Lender contained in this Agreement, each as if made on
such date, and the performance by the Lender on or before such date of all
covenants and agreements of the Lender required to be performed on or before
such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to
purchase the Debentures and the Warrants on the relevant Closing Date is
conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company;
b. Delivery by the Company to the Escrow Agent of the
Certificates in accordance with this Agreement;
21
c. On the Initial Closing Date, the Lender shall have received
a Secretary's Certificate and Officer's Certificate from the Company, dated the
Closing Date in form, scope and substance reasonably satisfactory to the Lender,
substantially to the effect set forth in ANNEX III attached hereto;
d. The accuracy in all material respects on such Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;
e. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and
f. From and after the date hereof to and including such
Closing Date, each of the following conditions will remain in effect: (i) the
trading of the Common Stock shall not have been suspended by the SEC or on the
Principal Trading Market; (ii) trading in securities generally on the Principal
Trading Market shall not have been suspended or limited; (iii), no minimum
prices shall been established for securities traded on the Principal Trading
Market; and (iv) there shall not have been any material adverse change in any
financial market that, in the reasonable judgment of the Lender, makes it
impracticable or inadvisable to purchase the Debentures.
9. INDEMNIFICATION.
A. (i) The Company agrees to indemnify and hold harmless the
Lender and its officers, directors, employees, and agents, and each Lender
Control Person from and against any losses, claims, damages, liabilities or
expenses incurred (collectively, "Damages"), joint or several, and any action in
respect thereof to which the Lender, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and any such Lender Control
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from the Lender's failure to perform any covenant or agreement contained in this
Agreement or the Lender's or its officers, directors, employees, agents or
Lender Control Persons negligence, recklessness or bad faith in performing its
obligations under this Agreement.
(ii) If (x) the Lender becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements (other than
the Registration Rights Agreement), or if the Lender is impleaded in any such
action, proceeding or investigation by any Person, or (y) the Lender becomes
involved in any capacity in any action, proceeding or investigation brought by
22
the SEC, any self-regulatory organization or other body having jurisdiction,
against or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements (other than the Registration Rights Agreement), or if the
Lender is impleaded in any such action, proceeding or investigation by any
Person, then in any such case, other than by reason of the Lender's actions
(other than the Lender's execution of the Transaction Agreements to which it is
a signatory, the payment of the applicable Purchase Price, and/or the exercise
of any of the Lender's rights under any one or more of the Transaction
Agreements), the Company hereby agrees to indemnify, defend and hold harmless
the Lender from and against and in respect of all Damages resulting from,
imposed upon or incurred by the Lender, directly or indirectly, and reimburse
the Lender for its reasonable legal and other expenses (including the cost of
any investigation and preparation) for a single firm of counsel incurred in
connection therewith, as such expenses are incurred. The indemnification and
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Lender who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and Lender Control Persons (if any), as the case
may be, of the Lender and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Lender, any such Affiliate and any such
Person. The Company also agrees that neither the Lender nor any such Affiliate,
partner, director, agent, employee or Lender Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, other than by reason of the
Lender's actions (other than the Lender's execution of the Transaction
Agreements to which it is a signatory, the payment of the applicable Purchase
Price, and/or the exercise of the Lender's rights under any one or more of the
Transaction Agreements).
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section 9 shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any
Person claiming indemnification under any provision of this Section 9 (an
"Indemnified Party") might seek indemnity under Section 9(a) is asserted against
or sought to be collected from such Indemnified Party by a Person other than a
party hereto or an Affiliate thereof (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of this Section 9 against any Person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
23
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section 9 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim. The following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this Section 9(b), then the Indemnifying Party shall have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party,
at the sole cost and expense of the Indemnifying Party, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a
final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party
in the case of any settlement that provides for any relief other than
the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9(a)). The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the first sentence of this subparagraph (x), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this
subparagraph (x), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect to
such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third
Party Claim at any time if it irrevocably waives its right to indemnity
under Section 9(a) with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 9(b), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying
Party fails to give any notice whatsoever within the Dispute Period,
then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in good faith or will
be settled at the discretion of the Indemnified Party (with the consent
24
of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in subparagraph (z) below,
the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this
subparagraph (y) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control,
any defense or settlement controlled by the Indemnified Party pursuant
to this subparagraph (y), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section
9(a) or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party with respect to such Third Party
Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section
9(a) and the Indemnifying Party shall pay the amount of such Damages to
the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty
(30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
(ii) In the event any Indemnified Party should have a claim
under Section 9(a) against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver a written notification of a
claim for indemnity under Section 9(a) specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
25
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 9(a) and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Indemnity Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to.
10. JURY TRIAL WAIVER. The Company and the Lender hereby waive
a trial by jury in any action, proceeding or counterclaim brought by either of
the Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement or
any of the other Transaction Agreements and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on FORUM NON
CONVENIENS, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
26
This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original.
The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
12. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and
shall be deemed effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or
(c) the third business day after mailing by domestic or
international express courier, with delivery costs and fees
prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
Company: Advanced Technology Industries, Inc.
000 Xxxxxxx Xxxxxx, #00X
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxx
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
27
with a copy to:
Xxxxxxx X. Xxxxxx , Esq.
Ropes & Xxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Tel: 000-000-0000
Fax: 000-000-0000
Lender: At the address set forth below.
Chicago Venture Partners, L.P.
000 Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx & Prager LLP
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
Escrow Agent: Xxxxxxx & Prager LLP
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Lender's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Certificates
and the payment of the applicable Purchase Price for a period of two years after
the last Closing Date, and shall inure to the benefit of the Lender and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
28
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Lender) as of the date set forth below.
SIGNATURE FOR LENDER
IN WITNESS WHEREOF, the undersigned represents that the
foregoing statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this 24th day of March,
2006.
CHICAGO VENTURE PARTNERS, L.P.
BY: CHICAGO VENTURE MANAGEMENT, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY, ITS SOLE
GENERAL PARTNER
BY: CVM, INC., AN ILLINOIS CORPORATION,
MANAGER
By:_________________________________________
29
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
By:_________________________________
Title:______________________________
Date: March 24, 2006
30
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III SECRETARY'S CERTIFICATE
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI- FORM OF WARRANT
ANNEX VII COMPANY'S SEC DOCUMENTS AVAILABLE ON XXXXX
ANNEX VIII SECURITY AGREEMENT
