Exhibit 4.1
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Between
OPHTHALMIC SOLUTIONS, INC.
and
THE PURCHASER(S) LISTED ON
SCHEDULE 1 HERETO
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September 22, 2003
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS...............................................1
1.1 Certain Definitions..................................................1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.......................6
2.2 Purchase and Sale; Purchase Price....................................6
2.2 Execution and Delivery of Documents; the Closing.....................6
2.3 The Post-Closing.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................9
3.1 Representations, Warranties and Agreements of the Company............9
3.2 Representations and Warranties of the Purchaser.....................12
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES..................................14
4.1 Manner of Offering..................................................14
4.2 Furnishing of Information...........................................14
4.3 Notice of Certain Events............................................14
4.4 Copies and Use of Disclosure Documents and Non-Public Filings.......14
4.5 Modification to Disclosure Documents................................15
4.6 Blue Sky Laws.......................................................15
4.7 Integration.........................................................15
4.8 Furnishing of Rule 144(c) Materials.................................15
4.9 Solicitation Materials..............................................15
4.10 Subsequent Financial Statements.....................................15
4.11 Prohibition on Certain Actions......................................16
4.12 Listing of Common Stock.............................................16
4.13 Escrow..............................................................16
4.15 Attorney-in-Fact....................................................17
4.16 Indemnification.....................................................18
4.17 Exclusivity.........................................................20
4.18 Purchaser's Ownership of Common Stock...............................20
4.19 Purchaser's Rights if Trading in Common Stock is Suspended..........21
4.20 No Violation of Applicable Law......................................22
4.21 Redemption Restrictions.............................................22
4.22 No Other Registration Rights........................................22
4.23 Merger or Consolidation.............................................23
4.24 Registration of Escrow Shares.......................................23
4.25 Liquidated Damages..................................................25
4.26 Short Sales.........................................................25
4.27 Fees................................................................25
4.28 Additional Fees.....................................................26
4.29 Changes to Federal and State Securities Laws........................26
4.30 Merger Agreement....................................................27
ARTICLE V TERMINATION......................................................28
5.1 Termination by the Company or the Purchaser.........................28
5.2. Remedies............................................................29
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ARTICLE VI LEGAL FEES AND DEFAULT INTEREST RATE.............................29
ARTICLE VII MISCELLANEOUS....................................................29
7.1 Fees and Expenses...................................................29
7.2 Entire Agreement; Amendments........................................30
7.3 Notices.............................................................30
7.4 Amendments; Waivers.................................................31
7.5 Headings............................................................31
7.6 Successors and Assigns..............................................32
7.7 No Third Party Beneficiaries........................................32
7.8 Governing Law; Venue; Service of Process............................32
7.9 Survival............................................................32
7.10 Counterpart Signatures..............................................32
7.11 Publicity...........................................................32
7.12 Severability........................................................33
7.13 Limitation of Remedies..............................................33
7.14 Omnibus Provision...................................................33
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THIS CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement") is made and
entered into as of September 22, 2003, between Ophthalmic Solutions, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), and the purchaser(s) listed on Schedule 1 hereto (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to acquire from the Company (i) the Company's $992,750, 1% Convertible
Debentures, due September 21, 2008 in the aggregate amount of Nine Hundred
Ninety Two Thousand Seven Hundred Fifty Dollars ($992,750), at the aggregate
price of Nine Hundred Ninety Two Thousand Seven Hundred Fifty Dollars ($992,750)
in the forms of Exhibit A-1 ("First Debenture A") and Exhibit A-2 ("First
Debenture B") annexed hereto and made a part hereof (the "First Debentures") and
(ii) the Company's $7,250, 1% Convertible Debenture, due September 21, 2008, at
the price of Seven Thousand Two Hundred Fifty Dollars ($7,250) in the form of
Exhibit B annexed hereto and made a part hereof (the "Second Debenture";
together, with the First Debentures, the "Debentures").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Additional Shares" shall have the meaning set forth in Section 4.14(e)
hereof.
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"AMEX" means the American Stock Exchange, Inc.
"Attorney-in-Fact" shall have the meaning set forth in Section 2.2(a)(iv)
hereof.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government actions to close.
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"Closing" shall have the meaning set forth in Section 2.2(a).
"Closing Date" shall have the meaning set forth in Section 2.2(a).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares now or hereafter authorized of the class of
common stock, par value $.001, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Company" shall have the meaning set forth in the introductory paragraph.
"Company Notice" shall have the meaning set forth in Section 4.17(b).
"Control Person" shall have the meaning set forth in Section 4.16(a)(i)
hereof.
"Conversion Date" shall have the meaning set forth in the Debentures.
"Debenture Notice" shall have the meaning set forth in Section 4.18 hereof.
"Debentures" shall have the meaning set forth in the recital.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Disclosure Documents" means (a) the Company's unaudited balance sheet as
at September 21, 2003 and profit and loss statement for the period from
inception to September 21, 2003 and (b) the Schedules required to be furnished
to the Purchaser by or on behalf of the Company pursuant to Section 3.1 hereof.
"Effective Date" shall mean the date on which certificate of merger (the
"Certificate of Merger") annexed as Exhibit D hereto is filed with the Secretary
of State of the State of Delaware to effect the merger of Arrow Acquisition,
Inc. ("Acquistion"), a Delaware corporation and a wholly owned subsidiary of
Insite Vision Incorporated ("ISV"), a Delaware corporation, with and into the
Company (the "Merger") pursuant to the Merger Agreement annexed as Exhibit C
hereto.
"Escrow Agent" means Gottbetter & Partners, 000 Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000; Tel: 000-000-0000; Fax: 000-000-0000.
"Escrow Agreement" shall have the meaning set forth in Section 4.13 hereof.
"Escrow Shares" means the certificates representing Five Million
(5,000,000) shares of duly issued Common Stock, without restriction and freely
tradable pursuant to Rule 504 of
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Regulation D of the Securities Act, in the share denominations specified by the
Purchaser, registered in the name of the Purchaser and/or its assigns to be held
in escrow pursuant to this Agreement and the Escrow Agreement.
"Event of Default" shall have the meaning set forth in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Execution Date" means the date of this Agreement first written above.
"First Debentures" shall have the meaning set forth in the recitals.
"Fixed Conversion Price" shall have the meaning set forth in Section 4.28
hereof.
"Full Conversion Shares" shall have the meaning set forth in Section
4.14(b) hereof.
"G&P" means Gottbetter & Partners, LLP.
"Indemnified Party" shall have the meaning set forth in Section 4.16(b)
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 4.16(b)
hereof.
"Initial Fixed Conversion Price" shall have the meaning set forth in
Section 4.28 hereof.
"Limitation on Conversion" shall have the meaning set forth in Section 4.18
hereof.
"Losses" shall have the meaning set forth in Section 4.16(a) hereof.
"Lump Sum Payment" shall have the meaning set forth in Section 4.31 hereof.
"Material" shall mean having a financial consequence in excess of $100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(e).
"Maximum Share Limit" shall have the meaning set forth in Section 4.14(b)
hereof.
"Merger Agreement" means the Merger Agreement among ISV, Acquisition and
the Company, annexed as Exhibit C hereto.
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq Stock Market, Inc.(R)
"New Financing" shall have the meaning set forth in Section 4.17(b).
"Non-Public Filings" shall have the meaning set forth in Section 4.2
hereof.
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"Note" shall have the meaning set forth in Section 2.1(b)(ii) hereof.
"Notice of Conversion" shall have the meaning set forth in paragraph 1 of
Exhibit E annexed hereto.
"Original Issuance Date," shall have the meaning set forth in the
Debentures.
"OTCBB" shall mean the NASD over-the counter Bulletin Board(R) or similar
organization or agency succeeding to its functions.
"Per Share Market Value" of the Common Stock means on any particular date
(a) the last sale price of shares of Common Stock on such date or, if no such
sale takes place on such date, the last sale price on the most recent prior
date, in each case as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading, or (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange, the closing bid price per share as reported by Nasdaq, or
(c) if the Common Stock is not then listed or admitted to trading on the Nasdaq,
the closing bid price per share of the Common Stock on such date as reported on
the OTCBB or if there is no such price on such date, then the last bid price on
the date nearest preceding such date, or (d) if the Common Stock is not quoted
on the OTCBB, the closing bid price for a share of Common Stock on such date in
the over-the-counter market as reported by the Pinksheets LLC (or similar
organization or agency succeeding to its functions of reporting prices) or if
there is no such price on such date, then the last bid price on the date nearest
preceding such date, or (e) if the Common Stock is not publicly traded, the fair
market value of a share of the Common Stock as determined by an Appraiser (as
defined in and pursuant to the procedures set forth in Section 4(c)(iv) of the
Debentures) selected in good faith by the holders of a majority of the
Debentures; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Post-Closing" shall have the meaning set forth in Section 2.3(a).
"Post-Closing Date" shall have the meaning set forth in Section 2.3(a).
"Power of Attorney" means the power of attorney in the form of Exhibit G
annexed hereto.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
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"Proposal" shall have the meaning set forth in Section 4.14(e) hereof.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Purchaser" shall have the meaning set forth in the introductory paragraph.
"Registrable Securities" means the Underlying Shares and the Escrow Shares
entitled to registration pursuant to Section 4.24 and Section 4.29.
"Reporting Issuer" means a company that is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
"Required Approvals" shall have the meaning set forth in Section 3.1(f).
"Restriction Period" shall have the meaning set forth in Section 4.17(a).
"Retainer Agreement" shall have the meaning set forth in Section 7.1
hereof.
"Right of First Refusal" shall have the meaning set forth in Section
4.17(b).
"Rights Period" shall have the meaning set forth in Section 4.17(b).
"Second Debenture" shall have the meaning set forth in the recital.
"Securities" means the Debentures, the Underlying Shares and the Escrow
Shares.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Approval Rules" shall have the meaning set forth in Section
4.14(e) hereof.
"Short Sale" shall have the meaning set forth in Section 4.26 hereof.
"Successors-in-Interest" shall have the meaning set forth in Section 4.31
hereof.
"Trading Day" means (a) a day on which the Common Stock is quoted on the
AMEX, Nasdaq, the OTCBB or the principal stock exchange on which the Common
Stock has been listed, or (b) if the Common Stock is not quoted on the AMEX,
Nasdaq, the OTCBB or any stock exchange, a day on which the Common Stock is
quoted in the over-the-counter market, as reported by the Pinksheets LLC (or any
similar organization or agency succeeding its functions of reporting prices).
"Transaction Documents" means this Agreement and all exhibits and schedules
hereto and all other agreements executed pursuant to this Agreement.
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"Underlying Shares" means the shares of duly issued Common Stock, without
restriction and freely tradable pursuant to Rule 504 of Regulation D of the
Securities Act, into which the First Debentures and Second Debenture are
convertible in accordance with the terms hereof, the First Debentures and the
Second Debenture.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
2.1 Purchase and Sale; Purchase Price.
(a) Subject to the terms and conditions set forth herein, the Company
shall issue and sell and the Purchaser shall purchase an aggregate principal
amount of One Million ($1,000,000) (the "Purchase Price") of the Debentures, of
which Nine Hundred Ninety Two Thousand Seven Hundred Fifty Dollars ($992,750)
shall be attributable to the First Debentures and Seven Thousand Two Hundred
Fifty Dollars ($7,250) shall be attributable to the Second Debenture. The
Debentures shall have the respective rights, preferences and privileges as set
forth in the respective Debentures annexed as Exhibit X-0, Xxxxxxx X-0 and
Exhibit B hereto.
(b) The Purchase Price shall be paid and attributable as follows:
(i) for the First Debenture A substantially in the form of
Exhibit A-1 annexed hereto cash in the amount of Four Hundred Ninety Two
Thousand Seven Hundred Fifty Dollars ($492,750);
(ii) for the First Debenture B, one promissory note of the
Purchaser in the aggregate amount of Five Hundred Thousand Dollars ($500,000)
annexed hereto as Exhibit K (the "Note"), to be paid in accordance with the
terms of the Note; and
(iii) for the Second Debenture substantially in the form of
Exhibit B, cash in the amount of Seven Thousand Two Hundred Fifty Dollars
($7,250).
2.2 Execution and Delivery of Documents; The Closing.
(a) The Closing of the purchase and sale of the Debentures (the
"Closing") shall take place simultaneously with the execution and delivery of
this Agreement (the "Closing Date"). On the Closing Date,
(i) the parties shall execute and deliver the Escrow Agreement to
the Escrow Agent;
(ii) the Company shall deliver to the Purchaser the (A) the
Disclosure Documents, (B) a duly executed copy of the Merger Agreement and
(B) the legal
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opinions of counsel to the Company substantially in the form of Exhibit H
and Exhibit I annexed hereto, addressed to the Purchaser and dated the date
hereof;
(iii) the Company shall deliver to the Escrow Agent (A) original
and duly executed Debentures (First Debenture A, First Debenture B and the
Second Debenture) registered in the name of the Purchaser and/or its
assigns in the amount set forth in Schedule 1, (B) an original and duly
executed Power of Attorney and (C) certificates representing the original
Escrow Shares;
(iv) the Company shall execute and deliver to the Purchaser a
certificate of its Chief Executive Officer, in the form of Exhibit J
annexed hereto, certifying that attached thereto is a copy of resolutions
duly adopted by the Board of Directors of the Company authorizing the
Company to execute and deliver the Transaction Documents and to enter into
the transactions contemplated thereby and the appointment, pursuant to
Section 4.14 hereof, of the attorney-in-fact pursuant to the Power of
Attorney annexed as Exhibit F hereto (the "Attorney-in-Fact"); and
(v) the Purchaser shall deliver to the Escrow Agent the Purchase
Price by (A) wire transfer of immediately available funds in the amount of
Five Hundred Thousand ($500,000) pursuant to written wire transfer
instructions delivered by the Escrow Agent to the Purchaser at least three
(3) Business Days prior to the Closing and (B) delivery of the original
executed Note.
(b) If this Agreement is terminated pursuant to Section 5.1 hereof,
then, within two (2) Business Days from the date of termination, either the
Company or the Purchaser shall notify the Escrow Agent of same, and
(i) the Escrow Agent shall, within two (2) Business Days of its
receipt of such notice,
(A) return the Purchase Price to the Purchaser;
(B) return Note to the Purchaser;
(C) return the Debentures to the Company; and
(D) return the Escrow Shares to the Company.
2.3 The Post-Closing.
(a) The post-closing of the purchase and sale of the Debentures (the
"Post-Closing") shall take place immediately after the Effective Date (the
"Post-Closing Date") at the offices of Gottbetter & Partners, 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, XX 00000; provided, however, that all of the transactions
contemplated by the Merger Agreement annexed as Exhibit C hereto shall have been
consummated in accordance with the terms of the Merger Agreement prior to the
Post-Closing; and further, provided, that the Post-Closing may not occur later
than ten (10) days after the Closing Date (except if such 10th day is not a
Business Day, then the next Business Day), unless the Purchaser agrees in
writing in advance to an extension, which
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writing shall set forth the new Post-Closing Date. The Merger Agreement shall be
executed immediately after the Closing.
(b) At the Post-Closing,
(i) the Escrow Agent shall deliver to the Purchaser and/or its
assigns an original and duly issued First Debenture A and Second Debenture,
each registered in the name of the Purchaser and in denominations specified
by the Purchaser in the amounts set forth in Schedule 1 hereto or with
written notice to the Escrow Agent prior to the Post-Closing ;
(ii) the Company shall deliver to the Purchaser the following:
(A) certified copies of the Certificate of Merger as filed
with the Secretary of State of the State of Delaware;
(B) a certificate, dated the Post-Closing Date and signed by
the Secretary of the Company, certifying (1) that attached thereto are true,
correct and complete copies of (a) the Company's Certificate of Incorporation,
as amended to the date thereof, (b) the Company's by-laws, as amended to the
date thereof, and (c) a certificate of good standing from the Secretary of State
of Delaware and (2) the incumbency of the officer executing this Agreement;
(C) a certificate of the Company's Chief Executive Officer,
dated the Post-Closing Date, certifying that the representations and warranties
of the Company contained in Article III hereof are true and correct in all
material respects on the Post-Closing Date (except for representations and
warranties that speak of a specific date, which representations and warrants
shall be true, correct and complete in all material respects as of such date);
and
(D) all other documents, instruments and writings required
to have been delivered by the Company at or prior to the Post-Closing pursuant
to this Agreement.
(c) Upon receipt by the Purchaser of those items set forth in Sections
2.3(b)(i) through (ii) above, the Escrow Agent shall as soon as practicable
deliver the following to or on behalf of ISV, as applicable:
(i) the Purchase Price, (A) attributable to First Debenture A and
the Second Debenture, by wire transfer of immediately available funds in
the amount of Five Hundred Thousand Dollars ($500,000) to ISV pursuant to
written wire transfer instructions delivered by ISV to the Escrow Agent at
least three (3) Business Days prior to the Post-Closing Date and (B)
attributable to First Debenture B by delivery of the original executed Note
to the promisee of the Note; and
(ii) all documents, instruments, and writings required to have
been delivered or necessary at or prior to the Post-Closing by the
Purchaser pursuant to this Agreement.
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(d) The Escrow Agent shall retain and hold the Escrow Shares, and the
First Debenture B, both of which shall be held in accordance with the terms of
this Agreement, the Note and the Escrow Agreement.
2.4 First Debenture B. Subject to Section 4.28, the Escrow Agent will hold
the First Debenture B in escrow until either (i) the obligations under the Note
by its terms becomes due and payable and subsequently paid in full by the
Purchaser, whereupon the Escrow Agent will deliver the First Debenture B to the
Purchaser or (ii) the obligations under the Note expire under its terms,
whereupon the First Debenture B will be delivered to the Company for
cancellation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchaser, all
of which shall survive the Post-Closing until the earlier of two years from the
date hereof and the date all the Debentures have been converted or redeemed:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries. The Company is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not, individually or in the aggregate, have
a material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company, taken as a whole (a "Material Adverse
Effect").
(b) Authorization, Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by each other Transaction Document and to otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other Transaction Documents to which it is a
party by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the part
of the Company. Each of this Agreement and each of the other Transaction
Documents to which it is a party has been or will be duly executed by the
Company and when delivered in accordance with the terms hereof or thereof will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth on Schedule 3.1(c). No Debentures have been
issued as of the date hereof.
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No shares of Common Stock are entitled to preemptive or similar rights, nor is
any holder of the Common Stock entitled to preemptive or similar rights arising
out of any agreement or understanding with the Company by virtue of this
Agreement. Except as described in this Agreement, or disclosed in Schedule
3.1(c), there are no outstanding options, voting agreements or merger
agreements, arrangements, warrants, script, rights to subscribe to, registration
rights, calls or commitments of any character whatsoever relating to, or, except
as a result of the purchase and sale of the Debentures hereunder, securities,
rights or obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire, any shares of Common Stock or other
securities, or contracts, commitments, understandings, or arrangements by which
the Company is or may become bound to issue additional shares of Common Stock or
other securities, or securities or rights convertible or exchangeable into
shares of Common Stock or other securities. The Company is not in violation of
any of the provisions of its Certificate of Incorporation, bylaws or other
charter documents.
(d) Issuance of Securities. The Debentures and the Escrow Shares have
been duly and validly authorized for issuance, offer and sale pursuant to this
Agreement and, when issued and delivered as provided hereunder or in the
Debentures against payment in accordance with the terms hereof, shall be valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms. The Company has and at all times while
the Debentures are outstanding will continue to maintain an adequate reserve of
shares of Common Stock to enable it to perform its obligations under this
Agreement and the Debentures except as otherwise permitted in this Agreement or
the Debentures. When issued in accordance with the terms hereof and the
Debentures, the Securities will be duly authorized, validly issued, fully paid
and non-assessable. Except as set forth in Schedule 3.1(d) or Schedule 3.1(c)
hereto, there is no equity, equity equivalent security, debt or equity lines of
credit outstanding. Except as otherwise provided herein, nothing contained in
this Section 3.1(d) shall be deemed to permit the Company to issue any
convertible security or instrument or equity line of credit.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its
Certificate of Incorporation or bylaws (each as amended through the date hereof)
or (ii) be subject to obtaining any of the consents referred to in Section
3.1(f), 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 Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including, but not limited to, those of other countries and
the federal and state securities laws and regulations), or by which any property
or asset of the Company is bound or affected, except in the case of clause (ii),
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company is not being conducted in violation
in any material respect of any law, ordinance or regulation of any governmental
authority.
(f) Consents and Approvals. Other than the approval of its board of
directors and stockholders, which have been obtained, and Except as specifically
set forth in Schedule
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3.1(f), the Company is not required to obtain any consent, waiver, authorization
or order of, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of this
Agreement and each of the other Transaction Documents, except for the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
to effect the Merger pursuant to the Merger Agreement, which shall be filed no
later than ten (10) days from the Closing Date (together with the consents,
waivers, authorizations, orders, notices and filings referred to in Schedule
3.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in
Schedule 3.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of any of the Transaction Documents, the Debentures
and the Underlying Shares (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under the Transaction Documents.
(h) No Default or Violation. Except as set forth in Schedule 3.1(h)
hereto, the Company (i) is not in default under or in violation of any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, except
such defaults or violations as do not have a Material Adverse Effect, (ii) is
not in violation of any order of any court, arbitrator or governmental body,
except for such violations as do not have a Material Adverse Effect, or (iii) is
not in violation of any statute, rule or regulation of any governmental
authority which could (individually or in the aggregate) (x) adversely affect
the legality, validity or enforceability of this Agreement, (y) have a Material
Adverse Effect or (z) adversely impair the Company's ability or obligation to
perform fully on a timely basis its obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the Company
to any investment banker, broker, placement agent or bank with respect to the
consummation of the transactions contemplated hereby except as provided in
Section 4.27 hereof.
(j) Disclosure Documents. The Disclosure Documents taken as a whole
are accurate in all material respects and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
(k) Manner of Offering. Assuming the Purchaser's representations and
warranties contained in Section 3.2 are true and correct, based on legal
opinions received from Jehu Hand, (a) the Securities are being offered and sold
to the Purchaser without registration under the Securities Act in a private
placement that is exempt from registration pursuant to Rule 504 of Regulation D
of the Securities Act and without registration under the Colorado Securities Act
of the Colorado Revised Statues (the "Colorado Act") in reliance upon the
exemption provided by Section 00-00-000 of the Colorado Act and regulation
51-3.13B promulgated
11
thereunder; and (b) accordingly, the Securities are being issued without
restriction and may be freely traded pursuant to Rule 504 of Regulation D of the
Securities Act.
(l) Non-Registered Offering. Neither the Company nor any Person acting
on its behalf has taken or will take any action (including, without limitation,
any offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of the Securities
under the Securities Act) which might subject the offering, issuance or sale of
the Securities to the registration requirements of Section 5 of the Securities
Act.
(m) Not a Reporting Company; Eligibility to use Exemption under
504(b). As of the date hereof, the Company is not subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act. The Company has
not sold any securities under Rule 504(b) in the last twelve months. Based on
the legal opinions from Jehu Hand, the Company is eligible to issue securities
exempt from registration pursuant to Rule 504 of Regulation D promulgated under
the Securities Act. The Company is a development stage company that has a
specific business plan that is other than to engage in a merger or acquisition
with an unidentified company or companies.
(n) No Undisclosed Liabilities. Except for the transactions
contemplated in this Agreement and the Merger Agreement, there are no material
liabilities of OS, whether absolute, accrued, contingent or otherwise.
The Purchaser acknowledges and agrees that the Company makes no representation
or warranty with respect to itself or the transactions contemplated hereby other
than those specifically set forth in Section 3.1 hereof.
3.2 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company all of which shall survive the
Post-Closing until the earlier of two years from the date hereof and the date
the Debentures have been converted or redeemed:
(a) Organization; Authority. The Purchaser is a limited liability
company, duly organized, validly existing and in good standing under the laws of
Colorado with the requisite power and authority to enter into and to consummate
the transactions contemplated hereby and by the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The acquisition
of the Debentures to be purchased by the Purchaser hereunder has been duly
authorized by all necessary action on the part of the Purchaser. This Agreement
has been duly executed and delivered by the Purchaser and constitutes the valid
and legally binding obligation of the Purchaser, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to, or affecting generally the enforcement of, creditors rights and
remedies or by other general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Debentures to be
purchased by it hereunder, and will acquire the Underlying Shares relating to
such Debentures, for its own account for investment purposes only and not with a
view to or for distributing or
12
reselling such Debentures or Underlying Shares or any part thereof or interest
therein, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement, at all times to sell or otherwise dispose of all
or any part of such Debentures or Underlying Shares in compliance with
applicable federal and state securities laws.
(c) Purchaser Status. At the time the Purchaser was offered the
Debentures to be acquired by it hereunder, it was, at the date hereof it is and
at the Post-Closing it will be an "accredited investor" as defined in Rule
501(a) under the Securities Act. Purchaser is a resident in the State of
Colorado and no other jurisdiction.
(d) Experience of Purchaser. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the Securities to be acquired by it hereunder, and has
so evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The Purchaser is
able to bear the economic risk of an investment in the Securities to be acquired
by it hereunder and, at the present time, is able to afford a complete loss of
such investment.
(f) Prohibited Transactions. The securities to be acquired by the
Purchaser hereunder are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan," within the meaning of Section 3(3) of the
Employment Retirement Income Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges receipt of the
Disclosure Documents and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the Securities and the merits and risks of investing in the Securities; (ii)
access to information about the Company and the Company's financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its investment in the Securities; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Documents.
(h) Reliance. The Purchaser understands and acknowledges that (i) the
Debentures being offered and sold to it hereunder are being offered and sold
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under Rule 504 of
Regulation D under the Securities Act and (ii) the availability of such
exemption depends in part on, and that the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Manner of Offering. The Securities are being issued pursuant to Rule
504 (b) of Regulation D of the Securities Act. Based on the legal opinions from
Jehu Hand, the Securities will be exempt from restrictions on transfer, and will
carry no restrictive legend with respect to the exemption from registration
under the Securities Act. The Company will use its commercially reasonable best
efforts to insure that it takes no actions that would jeopardize the
availability of the exemption from registration under Rule 504(b) for the
Securities and, if for any reason such exemption becomes unavailable due to the
Company's action or failure to act, the Company shall cause the Securities to be
registered under the Securities Act as required by Section 4.29.
4.2 Furnishing of Information. As long as the Purchaser owns any of the
Securities, and unless and until the Securities are assumed by ISV or the
Company becomes subject to the reporting requirements under Section 13(a) or
15(b) of the Exchange Act, the Company will, upon written consent of Purchaser,
promptly furnish to the Purchaser financial information similar to that required
to be reported in annual and quarterly reports comparable to those required by
Section 13(a) or 15(d) of the Exchange Act (the "Non-Public Filings").
4.3 Notice of Certain Events. The Company shall, on a continuing basis, as
long as the Purchaser owns any of the Securities, (i) advise the Purchaser
promptly after obtaining knowledge of, and, if requested by the Purchaser,
confirm such advice in writing, of (A) the issuance by any state securities
commission of any stop order suspending the qualification or exemption from
qualification of the Securities, for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority, or (B) any event that makes any
statement of a material fact made by the Company in Section 3.1 or in the
Disclosure Documents untrue or that requires the making of any additions to or
changes in Section 3.1 or in the Disclosure Documents in order to make the
statements therein, in each case at the time such Disclosure Documents were
delivered to the Purchaser and in the light of the circumstances under which
they were made, not misleading, (ii) use its commercially reasonable best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Securities under any state
securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Securities under any such
laws, use its commercially reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
4.4 Copies and Use of Disclosure Documents and Non-Public Filings. The
Company (or, following the Post-Closing, ISV) shall furnish the Purchaser,
without charge, as many copies of the Disclosure Documents and the Non-Public
Filings and any amendments or supplements thereto as the Purchaser may
reasonably request. The Company consents to the use of the Disclosure Documents
and the Non-Public Filings and any amendments and supplements to any of them by
the Purchaser in connection with resales of the Securities.
14
4.5 Modification to Disclosure Documents. If any event shall occur as a
result of which, in the reasonable judgment of the Company or the Purchaser, it
becomes necessary or advisable to amend or supplement any of the Disclosure
Documents or the Non-Public Filings in order to make the statements therein, at
the time such Disclosure Documents or the Non-Public Filings were delivered to
the Purchaser and in the light of the circumstances under which they were made,
not misleading, or if it becomes necessary to amend or supplement any of the
Disclosure Documents or the Non-Public Filings to comply with applicable law,
the Company shall as soon as practicable prepare an appropriate amendment or
supplement to each such document in form and substance reasonably satisfactory
to both the Purchaser and Company so that (i) as so amended or supplemented,
each such document will not include an untrue statement of material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time it is delivered to the
Purchaser, not misleading and (ii) the Disclosure Documents and the Non-Public
Filings will comply with applicable law in all material respects.
4.6 Blue Sky Laws. The Company shall cooperate with the Purchaser in
connection with the exemption from registration of the Securities under the
securities or Blue Sky laws of such jurisdictions as the Purchaser may request;
provided, however, that the Company shall be not required in connection
therewith to (a) qualify as a foreign corporation where they are not now so
qualified, or (b) submit to taxation or general service of process in such
jurisdiction. The Company agrees that it will execute all necessary documents
and pay all necessary state filing or notice fees to enable the Company to sell
the Securities to the Purchaser.
4.7 Integration. The Company shall not and shall use its commercially
reasonable best efforts to ensure that no Affiliate shall sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser.
4.8 Furnishing of Rule 144(c) Materials. The Company shall, for so long as
any of the Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, make
available to any registered holder of the Securities ("Holder" or "Holders") in
connection with any sale thereof and any prospective purchaser of such
Securities from such Person, such information in accordance with Rule 144(c)(2)
promulgated under the Securities Act as is required to sell the Securities under
Rule 144 promulgated under the Securities Act.
4.9 Solicitation Materials. The Company shall not (i) distribute any
offering materials in connection with the offering and sale of the Debentures or
the Underlying Shares other than the Disclosure Documents and any amendments and
supplements thereto prepared in compliance herewith or (ii) solicit any offer to
buy or sell the Debentures or the Underlying Shares by means of any form of
general solicitation or advertising.
4.10 Subsequent Financial Statements. (a) Until the Post-Closing Date, if
not otherwise publicly available, upon the written request of Purchaser, the
Company shall promptly furnish to the Purchaser a copy of all financial
statements for any period subsequent to the period
15
covered by the financial statements included in the Disclosure Documents until
the full conversion of the Debentures.
(b) After the Post-Closing Date, if not otherwise publicly available,
upon written request of Purchaser, ISV shall promptly furnish to the Purchaser a
copy of all financial statements relating to ISV for any period subsequent to
the period covered by the financial statements included in the Disclosure
Documents until the full conversion of the Debentures.
4.11 Prohibition on Certain Actions. From the date hereof through the
Post-Closing Date, the Company shall not, without the prior written consent of
the Purchaser, (i) amend its certificate or articles of incorporation, by-laws
or other charter documents so as to adversely affect any rights of the
Purchaser; (ii) split, combine or reclassify its outstanding capital stock;
(iii) declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock; (iv) redeem, repurchase or offer to repurchase
or otherwise acquire shares of its Common Stock; or (v) enter into any agreement
with respect to any of the foregoing other than the Merger Agreement.
4.12 Listing of Common Stock. Until the Post-Closing Date, if the Common
Stock shall become listed on the AMEX, OTCBB or on another exchange, the Company
shall (a) use its commercially reasonable best efforts to maintain the listing
of its Common Stock on the AMEX, OTCBB or such other exchange on which the
Common Stock is then listed until expiration of each of the periods during which
the Debentures may be converted and (b) shall provide to the Purchaser evidence
of such listing. After the Post-Closing Date, the references in this Section
4.12 to Company and Common Stock shall be deemed references to ISV and the
common stock of ISV, respectively.
4.13 Escrow. The Company and the Purchaser agree to execute and deliver,
simultaneously with the execution and delivery of this Agreement, the escrow
agreement attached hereto and made part hereof as Exhibit F (the "Escrow
Agreement"), and to issue into escrow (A) the certificates to be held by the
Escrow Agent, registered in the name of the Purchaser and without any
restrictive legend of any kind, pursuant to the terms of such escrow and (B) the
Note.
4.14 Conversion Procedures; Maintenance of Escrow Shares. (a) Exhibit E
attached hereto and made a part hereof sets forth the procedures with respect to
the conversion of the Debentures, including the forms of Notice of Conversion to
be provided upon conversion instructions as to the procedures for conversion and
such other information and instructions as may be reasonably necessary to enable
the Purchaser or its permitted transferee(s) to exercise the right of conversion
smoothly and expeditiously.
(b) Subject to a maximum of 5,000,000 Escrow Shares (the "Maximum
Share Limit") and to Section 4.14(e), the Company agrees that, at any time the
conversion price of the Debentures is such that the number of Escrow Shares for
the Debentures is less than 200% of the number of shares of Common Stock that
would be needed to satisfy full conversion of all of such Debentures then
outstanding, given the then current conversion price (the "Full Conversion
Shares"), upon five (5) Business Days written notice of such circumstance to the
Company by the Purchaser and/or the Escrow Agent, the Company shall issue
additional share certificates in
16
the name of the Purchaser and/or its assigns in denominations specified by the
Purchaser, and deliver same to the Escrow Agent, such that the new number of
Escrow Shares with respect to the Debentures is equal to 200% of the Full
Conversion Shares.
(c) The Purchaser shall not be entitled to convert the First Debenture A,
First Debenture B and the Second Debenture into a number of shares of Common
Stock exceeding the Maximum Share Limit.
(d) Subject to Section 4.14(e), if the Per Share Market Value of the Common
Stock is such that the aggregate number of shares of Common Stock issued and
then issuable upon conversion of the Debentures would exceed 5,000,000 shares
(as adjusted for stock splits, reverse stock splits, and the like), then the
Company may, at its option, (a) increase the Maximum Share Limit to comply with
Section 4.14(b) or (b) redeem the unconverted amount of the Debentures in whole
or in part at one hundred forty percent (140%) of the unconverted amount of the
Debentures being redeemed plus accrued interest thereon.
(e) After the Post-Closing Date, if ISV is required or elects pursuant to
this Section 4.14 to issue and deliver additional shares of common stock of ISV
(the "Additional Shares") to the Escrow Agent and such issuance would trigger
the shareholder approval requirements set forth in Section 712 of the AMEX
Company Guide, as then in effect or any equivalent rule or regulation of AMEX,
or would require an increase in the number of shares of common stock of ISV
authorized to be issued under the ISV Certificate of Incorporation, or, in the
event ISV is not at such time listed on AMEX, any equivalent rule or regulation
of any stock market, exchange or OTCBB on which the common stock of ISV is then
listed (collectively, "Shareholder Approval Rules"), then prior to issuing and
delivering such Additional Shares to the Escrow Agent and in accordance with any
applicable Shareholder Approval Rules (i) ISV shall immediately prepare and file
a proxy statement soliciting its stockholders' vote on a proposal to issue three
times the number of Additional Shares sufficient to cover 200% of the Full
Conversion Shares (the "Proposal") (provided that in no event shall ISV ever be
required to issue Escrow Shares exceeding 200% of the number of shares of its
common stock that will at such time be needed to satisfy full conversion of all
such Debentures then outstanding, given the then current conversion price) and
thereafter, as soon as allowed under the Exchange Act, the charter documents of
ISV and any other applicable law, rule or regulation, hold a special stockholder
meeting to vote upon the Proposal; (ii) ISV shall not be required to hold more
than one stockholder meeting to obtain such approval and shall not be required
to hire more than one proxy solicitor in connection with such special
stockholder meeting; and (iii) notwithstanding any other provision of this
Agreement or the Debentures, ISV shall not be required to issue and deliver the
Additional Shares to the Escrow Agent unless such issuance and delivery complies
with all applicable Shareholder Approval Rules, and the Escrow Agent can possess
the Additional Shares without violating any applicable Shareholder Approval
Rules.
4.15 Attorney-in-Fact. To effectuate the terms and provisions of this
Agreement, the Escrow Agreement and the Note, the Company hereby agrees to give
a power of attorney as is evidenced by Exhibit G annexed hereto. Other than acts
of willful misconduct or gross negligence, all acts done under such power of
attorney are hereby ratified and approved and neither the Attorney-in-Fact nor
any designee or agent thereof shall be liable for any acts of
17
commission or omission, for any error of judgment or for any mistake of fact or
law, as long as the Attorney-in-Fact is operating within the scope of the power
of attorney and this Agreement and its exhibits. The power of attorney, being
coupled with an interest, shall be irrevocable while any of the Debentures
remain unconverted or any portion of this Agreement or the Escrow Agreement
remains unsatisfied. In addition, the Company shall give the Attorney-in-Fact
resolutions executed by the Board of Directors of the Company which authorize
transfers of the Debentures, future issuances of the Underlying Shares for the
Debentures, and which resolutions state that they are irrevocable while any of
the Debentures remain unconverted, or any portion of this Agreement or the
Escrow Agreement remains unsatisfied.
4.16 Indemnification.
(a) Indemnification
(i) The Company shall, notwithstanding termination of this
Agreement, indemnify and hold harmless the Purchaser and its officers,
directors, agents, employees and affiliates, each Person who controls the
Purchaser (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) (each such Person, a "Control Person") and
the officers, directors, agents, employees and affiliates of each such
Control Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of, or
relating to, a breach or breaches of any representation, warranty, covenant
or agreement by the Company under this Agreement or any other Transaction
Document.
(ii) The Purchaser shall, notwithstanding termination of this
Agreement, indemnify and hold harmless the Company, its officers,
directors, agents and employees, each Control Person of the Company and the
officers, directors, agents and employees of each Control Person, to the
fullest extent permitted by applicable law, from and against any and all
Losses, as incurred, arising out of, or relating to, a breach or breaches
of any representation, warranty, covenant or agreement by the Purchaser
under this Agreement or any other Transaction Documents.
(b) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
18
An Indemnified Party shall have the right to employ separate counsel
in any such] Proceeding and to participate in, but not control, the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impeded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of the claim against the Indemnified Party but will
retain the right to control the overall Proceedings out of which the claim arose
and such counsel employed by the Indemnified Party shall be reasonably
acceptable to the Indemnifying Party and shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding, provided, however, the Indemnifying Party may
settle or compromise any asserted liability without the consent of the
Indemnitee so long as such settlement or compromise releases the Indemnitee and
does not include any admission or statement of fault against the Indemnitee.
All fees and expenses of the Indemnified Party to which the
Indemnified Party is entitled hereunder (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid to
the Indemnified Party, as incurred, within twenty (20) Business Days of written
notice thereof to the Indemnifying Party.
No right of indemnification under this Section 4.16 shall be available
as to a particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely or substantially out of the
negligence or bad faith of such Indemnified Party in performing the obligations
of such Indemnified Party under this Agreement or a breach by such Indemnified
Party of its obligations under this Agreement.
(c) Contribution. If a claim for indemnification under Section 4.16(a)
is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 4.16
would apply by its terms (other than by reason of exceptions provided in this
Section 4.16), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether there was
a judicial determination that
19
such Losses arise in part out of the negligence or bad faith of the Indemnified
Party in performing the obligations of such Indemnified Party under this
Agreement or the Indemnified Party's breach of its obligations under this
Agreement. The amount paid or payable by a party as a result of any Losses shall
be deemed to include any attorneys' or other fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party.
(d) Non-Exclusivity. The indemnity and contribution agreements
contained in this Section are in addition to any obligation or liability that
the Indemnifying Parties may have to the Indemnified Parties.
4.17 Exclusivity. (a) During the four month period commencing on the
Post-Closing Date (the "Restriction Period"), (A) except for the First Debenture
B, the Company and its Affiliates shall not issue or offer (i) any floorless
convertible security and (ii) any security issued pursuant to Rule 504 of
Regulation D promulgated under the Securities Act and (B) the Company and its
Affiliates shall not offer any equity lines of credit. The Company may request
that the restrictions in this Section 4.17(a) be waived. Except as specifically
set forth above, the Company may engage in any other debt or equity financing
during the Restriction Period.
(b) Subject to Section 4.17(a), during the thirty (30) days
immediately following the Restriction Period (the "Rights Period") the Company
and its Affiliates hereby grant to the Purchaser, or its successors or assigns,
a right of first refusal to participate in any and all additional equity or debt
financings (the "New Financing") of the Company or its Affiliates ("Right of
First Refusal"). For the purposes of this Section 4.17(b), "New Financing" shall
not include (i) up to two (2) million shares of Common Stock, options to
purchase up to two (2) million shares of Common Stock or some combination of
Common Stock and options to purchase Common Stock that would together total,
when the options were exercised, two (2) million shares of Common Stock, issued
to employees or directors of the Company pursuant to any stock option plan or
stock purchase plan of the Company or (ii) Common Stock issued upon the exercise
of convertible securities of the Company outstanding on the date hereof or
issued in connection with this Agreement. The Company or its Affiliates shall
notify the Purchaser in writing immediately upon its intent to issue the New
Financing (the "Company Notice") and the Purchaser shall be entitled to exercise
the Right of First Refusal by notifying the Company or its Affiliates in writing
of such election within five (5) Business Days of its receipt of the Company
Notice. The Company Notice shall include all of the terms and conditions of the
proposed New Financing. If the Purchaser does not respond within five (5)
Business Days of its receipt of the Company Notice, the Company or its
Affiliates have the right to offer the New Financing to third parties on the
same terms offered to the Purchaser for five (5) Business Days with a definitive
purchase agreement, related to the New Financing, to be executed no later than
forty-five (45) Business Days after the date of the Company Notice to Purchaser.
The Right of First Refusal shall be exercisable following the Rights Period if
the Company Notice is delivered within the Rights Period.
4.18 Purchaser's Ownership of Common Stock. In addition to and not in lieu
of the limitations on conversion set forth in the Debentures, the conversion
rights of the Purchaser set forth in the Debentures shall be limited, solely to
the extent required, from time to time, such
20
that, unless the Purchaser gives written notice 75 days in advance to the
Company of the Purchaser's intention to exceed the Limitation on Conversion as
defined herein, with respect to all or a specified amount of the Debentures and
the corresponding number of the Underlying Shares in no instance shall the
Purchaser (singularly, together with any Persons who in the determination of the
Purchaser, together with the Purchaser, constitute a group as defined in Rule
13d-5 of the Exchange Act) be entitled to convert the Debentures to the extent
such conversion would result in the Purchaser beneficially owning more than five
percent (5%) of the outstanding shares of Common Stock of the Company. For these
purposes, beneficial ownership shall be defined and calculated in accordance
with Rule 13d-3, promulgated under the Exchange Act (the foregoing being herein
referred to as the "Limitation on Conversion"); provided, however, that the
Limitation on Conversion shall not apply to any forced or automatic conversion
pursuant to this Agreement or the Debentures; and provided, further that if the
Purchaser shall have declared an Event of Default and, if a cure period is
provided, the Company shall not have properly and fully cured such Event of
Default within any such cure period, the provisions of this Section 4.18 shall
be null and void from and after such date. The Company shall, promptly upon its
receipt of a Notice of Conversion tendered by the Purchaser (or its sole
designee) for the Debentures, as applicable, notify the Purchaser by telephone
and by facsimile (the "Debenture Notice") of the number of shares of Common
Stock outstanding on such date and the number of Underlying Shares, which would
be issuable to the Purchaser (or its sole designee, as the case may be) if the
conversion requested in such Notice of Conversion were effected in full and the
number of shares of Common Stock outstanding giving full effect to such
conversion whereupon, in accordance with the Debentures, notwithstanding
anything to the contrary set forth in the Debentures, the Purchaser may, by
written notice to the Company within one (1) Business Day of its receipt of the
Debenture Notice by facsimile, revoke such conversion to the extent (in whole or
in part) that such Purchaser determines that such conversion would result in the
ownership by such Purchaser of shares of Common Stock in excess of the
Limitation on Conversion. The Debenture Notice shall begin the 75 day advance
notice required in this Section 4.18.
4.19 Purchaser's Rights if Trading in Common Stock is Suspended. If the
Common Stock is listed on any exchange, then at any time after the Post-Closing
if trading in the shares of the Common Stock is suspended (and not reinstated
within ten (10) Trading Days) on such stock exchange or market upon which the
Common Stock is then listed for trading (other than as a result of the
suspension of trading in securities on such market generally or temporary
suspensions pending the release of material information), or the Common Stock is
delisted from the OTCBB (and not reinstated within ten (10) Trading Days), and,
in either case, if not so reinstated, is not listed on another exchange, market
or the OTCBB, within such ten (10) Trading Day period, then, at the option of
the Purchaser exercisable by giving written notice to the Company (the
"Redemption Notice"), the Company shall redeem, as applicable, all of the
Debentures and Underlying Shares owned by such Purchaser within seven (7)
Business Days at an aggregate purchase price equal to the sum of:
(i) the product of (1) the average Per Share Market Value for the five
(5) Trading Days immediately preceding (a) the date of the Redemption Notice,
(b) the date of payment in full of the repurchase price under this Section 4.19
recalculated as of such payment date, or (c) the day when the Common Stock was
suspended, delisted or deleted from trading,
21
whichever is greater, multiplied by (2) the aggregate number of Underlying
Shares then held and owned by such Purchaser;
(ii) the greater of (A) the outstanding principal amount and accrued
and unpaid interest on the Debentures owned by such Purchaser and (B) the
product of (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (a) the date of the Redemption Notice, (b) the date of
payment in full of the repurchase price under this Section 4.19 recalculated as
of such payment date, or (c) the day when the Common Stock was suspended,
delisted or deleted from trading, whichever is greater, and (2) the aggregate
number of Underlying Shares issuable upon the conversion of the outstanding
Debentures then held and owned by the Purchaser utilizing the conversion
procedures contained in the Debentures (without taking into account the
Limitation on Conversion described in Section 4.18 hereof); and
(iii) interest on such amounts set forth in (i) and (ii) above
accruing from the seventh (7th) Business Day after the date of the Redemption
Notice until the repurchase price under this Section 4.19 is paid in full, at
the rate of eight percent (8%) per annum;
provided, however, if the Note has not been paid in full by the Purchaser to the
Company (whether or not it is otherwise then due or payable by its terms), (i)
any payments from the Company to the Purchaser pursuant to this Section 4.19
will be offset by the principal amount of the Note and (ii) "Debentures" shall
specifically refer to First Debenture A, First Debenture B and the Second
Debenture.
4.20 No Violation of Applicable Law. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of the Debentures or the Underlying
Shares otherwise required under this Agreement or the Debentures would be
prohibited by the relevant provisions of Delaware law, such redemption shall be
effected as soon as it is permitted under such law; provided, however, that
interest payable by the Company with respect to any such redemption shall accrue
in accordance with Section 4.19.
4.21 Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of the Debentures or the Underlying
Shares otherwise required under this Agreement or the Debentures would be
prohibited in the absence of consent from any lender to the Company, or by the
holders of any class of securities of the Company, the Company shall use its
commercially reasonable best efforts to obtain such consent as promptly as
practicable after any such redemption is required. Interest payable by the
Company with respect to any such redemption shall accrue in accordance with
Section 4.19 until such consent is obtained. Nothing contained in this Section
4.21 shall be construed as a waiver by the Purchaser of any rights it may have
by virtue of any breach of any representation or warranty of the Company herein
as to the absence of any requirement to obtain any such consent.
4.22 No Other Registration Rights. During the period commencing on the date
hereof and ending on the Post-Closing Date, the Company shall not file any
registration statement that provides for the registration of shares of Common
Stock to be sold by security holders of the Company, other than the Purchaser
and/or its respective Affiliates or assigns, without the prior written consent
of the Purchaser or its assigns, provided, however, that the limitation on the
right to file registration statements contained in this Section 4.22 shall not
apply to registration
22
statements relating solely to (i) employee benefit plans, notwithstanding the
inclusion of a resale prospectus for securities received under any such employee
benefit plan, or (ii) business combinations not otherwise prohibited by the
terms of this Agreement or the other Transaction Documents. This registration
restriction is in addition to the Company's registration restrictions set forth
in Section 4.24.
4.23 Merger or Consolidation. Until the earlier of (a) the full conversion
of the Debentures and (b) the Maturity Date of the Debentures (as that term is
defined in the Debentures), the Company will not, in a single transaction or a
series of related transactions (other than the Merger), (i) consolidate with or
merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless (w) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures, this Agreement and the other Transaction Documents; (x)
immediately before and immediately after giving effect to such transactions
(including any indebtedness incurred or anticipated to be incurred in connection
with the transactions), no Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares will be listed on either The New York Stock Exchange,
AMEX, Nasdaq National Market or Nasdaq SmallCap Market, or the OTCBB on or prior
to the closing of such transaction(s) and (z) the Company shall have delivered
to the Purchaser an officer's certificate and opinion of counsel, each stating
that such consolidation, merger (other than the Merger) or transfer complies
with this Agreement, that the agreements relating to such transaction(s) provide
that the surviving Person agrees to be bound by this Agreement and that all
conditions precedent in this Agreement relating to such transaction(s) have been
satisfied.
4.24 Registration of Escrow Shares. (a) So long as the Purchaser and/or its
assigns owns any of the Securities and to the Company's knowledge, the
Underlying Shares would not be freely transferable without registration, the
Company agrees not to file a registration statement with the SEC without
Purchaser's express written consent, other than on Form 10, Form S-4 (except for
a public reoffering or resale) or Form S-8 without first having registered (or
simultaneous registering) the Registrable Securities for resale under the
Securities Act and in such states of the United States as the holders thereof
shall reasonably request.
(b) If the Company shall propose to file with the SEC any registration
statement other than a Form 10, Form S-4 (except for a public reoffering or
resale) or Form S-8 which would cause, or have the effect of causing, the
Company to become a Reporting Issuer or to take any other action, other than the
sale of the Debentures to the Purchaser hereunder, the effect of which would be
to cause the Underlying Shares to be restricted securities (as such term is
defined in Rule 144 promulgated under the Securities Act), the Company agrees to
give written notification of such to the holders of the Securities at least two
weeks prior to such filing or taking of the proposed action. If any of the
Securities are then outstanding, the Company agrees to include in such
registration statement the Registrable Securities unless the Underlying Shares
would be freely transferable upon conversion of the Debentures without such
registration, so as to permit the public resale thereof.
If the registration of which the Company gives notice is for a registered
public offering involving an underwriting, the Company will so advise the
holders of the Securities. In such
23
event, these registration rights shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting to the extent provided herein. All
holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter selected by the Company. In the event that the lead or managing
underwriter in its good faith judgment determines that material adverse market
factors require a limitation on the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities. In such event, the
Company shall so advise all holders of securities requesting registration, and
the number of shares of the Registrable Securities that are entitled to be
included in the registration and underwriting shall be allocated pro rata among
all holders and other participants, including the Company, in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities and
other securities which they had requested to be included in such registration
statement at the time of filing the registration statement. If any holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter, provided such
notice is delivered within sixty (60) days of full disclosure of such terms to
such holder, without thereby affecting the right of such holder to participate
in subsequent offerings hereunder.
(c) Notwithstanding the foregoing, if the Company for any reason shall have
taken any action, other than the sale of the Debentures to the Purchaser
hereunder, the effect of which would be to cause the Registrable Securities to
be restricted securities (as such term is defined in Rule 144 promulgated under
the Securities Act), the Company agrees to use its commercially reasonable best
efforts to file a registration statement with the SEC and use its commercially
reasonable best efforts to have such registration statement declared effective
by the SEC which would permit the public resale of the Registrable Securities
under the Securities Act and in such states of the United States as the holders
thereof shall reasonably request.
(d) The Company agrees to use its commercially reasonable best efforts keep
any registration required pursuant to this Section 4.24 continuously effective
under the Securities Act and with such states of the United States as the
holders of the Registrable Securities shall reasonably request until the earlier
of (i) the date on which all of the Registrable Securities covered by any such
registration have been sold, (ii) two (2) years from the effective date of any
such registration, or (iii) the date on which all of the Registrable Securities
may be sold without restriction pursuant to Rule 144 of the Securities Act. All
costs and expenses of any such registration and related Blue Sky filings and
maintaining continuous effectiveness of such registration and filings shall be
borne by the Company, other than underwriters and brokers, fees and commissions.
(e) The Escrow Shares shall be registered by the Company under the
Securities Act if required by Section 4.29 and subject to the conditions stated
therein.
(f) Each holder of Registrable Securities agrees to cooperate and assist
the Company in preparing and filing any registration statement required to be
filed pursuant to this Agreement, including, without limitation, providing the
Company with such information about the holder and answering such questions as
deemed reasonably necessary by the Company in order to complete such
registration statement. Until such time as the Company is no longer required to
keep the registration statement effective, each holder of Registrable Securities
agrees to immediately
24
notify the Company of any change to the information provided to the Company in
connection with the preparation or maintenance of the registration statement,
and each such holder agrees to certify to the accuracy and completeness of all
information provided by it to the Company or its representatives in connection
with such registration statement.
4.25 Liquidated Damages. The Company understands and agrees that a breach
by the Company of Section 4.1, Section 4.24, Section 4.29, Section 4.30 or an
Event of Default as contained in this Agreement and/or any other Transaction
Document will result in substantial economic loss to the Purchaser, during the
period Purchaser owns the Securities which loss will be extremely difficult to
calculate with precision. Therefore, if, for any reason during the period
Purchaser owns the Securities, the Company breaches Sections 4.1, Section 4.24,
Section 4.29, Section 4.30 or fails to cure any Event of Default under Section
5.1 (a) (iii), (v), (vi) and (viii) within the time, if any, given to cure such
Event of Default, as compensation and liquidated damages for such breach or
default, and not as a penalty, the Company agrees to pay the Purchaser an amount
equal to the Purchase Price and the Purchaser, upon receipt of such payment,
shall return any unconverted Debentures to the Company. The Company shall, upon
demand, pay the Purchaser such liquidated damages by wire transfer of
immediately available funds to an account designated by the Purchaser. Nothing
herein shall limit the right of the Purchaser to pursue actual damages (less the
amount of any liquidated damages received pursuant to the foregoing) for the
Company's breach of Section 4.1, Section 4.24, Section 4.29, Section 4.30 or
failure to cure an Event of Default under Section 5.1 (a) (iii) (v) (vi) and
(viii), consistent with the terms of this Agreement.
4.26 Short Sales. The Purchaser agrees neither it nor any of its Affiliates
will enter into any Short Sales (as hereinafter defined) until the earlier to
occur of the date that the Purchaser no longer owns the Debentures and the
Maturity Date. For purpose hereof, a "Short Sale" shall mean a sale of Common
Stock by the Purchaser or any of its Affiliates that is marked as a short sale
and that is made at a time when there is no equivalent offsetting long position
in the Common Stock by the Purchaser or such Affiliate. For the purposes of
determining whether there is an equivalent offsetting long position in the
Common Stock held by the Purchaser, shares of Common Stock issuable upon
conversion of the Debentures shall be deemed to be held long by the Purchaser
with respect to the Underlying Shares for which a Notice of Conversion is
delivered within two (2) Trading Days following the Trading Day that such Short
Sale is entered into. The Purchaser will comply with all rules and regulations
contained in the Securities Act and the Exchange Act.
4.27 Fees. The Company will pay the following fees and expenses in
connection with the transactions contemplated hereby: (a) to G&P (i) legal fees
for document production in the amount of $20,000 and (ii) all reasonable
out-of-pocket expenses incurred in connection with such document production in
an amount not to exceed $5,000 and (b) to the Escrow Agent, $5,000 for the
escrow agent fee. ISV has already paid $20,000 to G&P. Unless paid prior, all
fees and expenses will be paid at Post-Closing and the Company and the Purchaser
hereby authorize and direct the Escrow Agent to deduct such fees and expenses
directly from escrow prior to distributing any funds to the Company. Except with
respect to the fees set forth in part (b) of this Section 4.27 and except as
otherwise set
25
forth in the Retainer Agreement, all fees and expenses shall be paid regardless
of whether the transactions contemplated hereby are closed or otherwise
completed. Except for the $20,000 already paid to G&P and except as otherwise
set forth in the Retainer Agreement, all fees to be paid hereunder shall have no
offsets, are non-refundable and non-cancelable.
4.28 First Debenture B and Note. Notwithstanding anything contained herein,
in the Debentures, or in the Note to the contrary, the First Debenture B shall
not accrue interest, shall not be convertible, and shall not be subject to
repayment by the Company at its maturity, and the Note shall not be due and
payable and shall not be deemed part of the "Purchase Price" for purposes of
Section 4.25 hereof, unless and until:
(i) the closing bid price per share of the common stock of ISV having
been at or above the Fixed Conversion Price (as defined in the First
Debenture A) (the "Initial Fixed Conversion Price") for thirty (30)
consecutive Trading Days at any time from the date hereof until the
Maturity Date (as defined in the First Debenture B); and
(ii) the number of Escrow Shares for the aggregate principal amount of
the First Debenture A and the Second Debenture then outstanding and
First Debenture B is at least 200% of the number of shares of common
stock of ISV that would be needed to satisfy full conversion of all
such unconverted Debentures,
provided, however, that if subparagraph (i) is satisfied and
subparagraph (ii) is not, ISV shall increase in accordance with
Section 4.14, the number of Escrow Shares to cover 200% of the number
of shares of common stock of ISV that would be needed to satisfy full
conversion of all of such Debenture pursuant to the procedures set
forth in Section 4.14(e); provided, further, that, notwithstanding the
foregoing, the First Debenture B shall not accrue interest, shall not
be convertible, and shall not be subject to repayment by the Company
at its maturity, and the Note shall not be deemed part of the
"Purchase Price" for purposes of Section 4.25 hereof, unless and until
the Note is paid in full by the Purchaser or its successors and
assigns.
4.29 Changes to Federal and State Securities Laws. If any of the Securities
require registration with or approval of any governmental authority under any
federal (including but not limited to the Securities Act or similar federal
statute then in force) or state law, or listing on any national securities
exchange, before they may be resold or transferred without any restrictions on
their resale or transfer for reasons including, but not limited to, a material
change in Rule 504 of Regulation D promulgated under the Securities Act or a
change to the exemption for sales made to Accredited Investors in the state in
which the Purchaser resides, the Company will, at its expense, (a) as
expeditiously as possible cause the Registrable Securities to be duly registered
or approved or listed on the relevant national securities exchange, as the case
may be, and (b) keep such registration, approval or listing, as the case may be,
continuously effective until the earlier of (i) the date on which all of the
Registrable Securities have been sold, (ii) two (2) years from the effective
date of any such registration, or (iii) the date on which all of the Securities
may be sold without restriction pursuant to Rule 144 of the Securities Act;
subject to the terms and limitations set forth in section 4.24. The Registrable
Securities shall be registered by the
26
Company under the Securities Act if required by Section 4.24 and subject to the
conditions stated therein.
4.30 Merger Agreement. Immediately upon the Effective Date, all of the
transactions contemplated by the Merger Agreement annexed hereto as Exhibit C
shall be consummated in accordance with the terms thereof.
4.31 Future Financing. If, at any time any of the Debentures are
outstanding, the Company, or its successors in interest due to mergers,
consolidations and/or acquisitions (the "Successors-in-Interest"), receives debt
or equity financing in an amount equal to or exceeding Five Million United
States dollars ($5,000,000) in a single transaction or series of related
transactions (excluding any portion of such financing consisting of forgiveness
of debt or other obligations and excluding the financing represented by this
Agreement and the Debentures), the Company or the Successors-in-Interest, as the
case may be, agrees to pay the Purchaser an amount equal to One Hundred Fifty
Percent (150%) of the then outstanding Debentures (the "Lump Sum Payment"). Upon
the Purchaser's receipt of the Lump Sum Payment, any and all remaining
obligations then outstanding between the Company or the Successors-in-Interest,
as the case may be, and Purchaser in connection with this Agreement and the
Debentures shall be deem satisfied, and the Agreement and the Debentures shall
be terminated. This provision shall survive both Closing and Post-Closing;
provided, however, if the Note has not been paid in full by the Purchaser to the
Company (whether or not it is otherwise then due or payable by its terms), (i)
any payments from the Company to the Purchaser pursuant to this Section 4.31
will be offset by the principal amount of the Note and (ii) "Debentures" shall
specifically refer to First Debenture A, First Debenture B and the Second
Debenture.
4.32 Applicability of Agreements after Post-Closing. At the Effective Date
or upon the consummation of any other merger or other transaction pursuant to
which the Company's obligations under the Debentures are assumed by another
party (whether or not such assumption is joint and several), the Company shall
be released from, and have no further obligation pursuant to Sections 4.1
through 4.6, 4.8, 4.10, 4.12, 4.14, 4.16 through 4.27, 4.29 and 4.31 hereof, and
any reference to the Company in such sections shall instead be deemed to refer
solely to the party that assumes the debentures. Notwithstanding the foregoing
or anything else to the contrary contained in this Agreement, any references to
Disclosure Documents or representations, warranties and agreements or statements
of Company made in Section 3.1 or elsewhere contained in this Agreement
(including, without limitation, the above referenced sections) shall remain
references to the Company and not to ISV. ISV is not making or adopting any of
the Disclosure Documents or the representations, warranties and agreements made
in Section 3.1, all of which remain Disclosure Documents and representations,
warranties, and agreements of the Company.
4.33 Second Debenture Restriction. The Purchaser shall not convert the
Second Debenture in a principal amount in excess of $3,625, unless and until the
First Debenture B becomes convertible by the Purchaser and subject to repayment
at its maturity by the Company and the Note is paid in full by the Purchaser.
27
4.34 Company's Right of Redemption. In addition to any right of the Company
to redeem any unconverted amount of the Debentures, in whole or in parts set
forth in this Agreement, the Company shall have any redemption right set forth
in the Debentures.
ARTICLE V
TERMINATION
5.1 Termination by the Company or the Purchaser. This Agreement shall be
terminated as follows upon the occurrence of any of the following events (each
an "Event of Default"):
(a) Automatically terminated prior to Post-Closing if:
(i) there shall be in effect any statute, rule, law or
regulation, including an amendment to Regulation D or an interpretive
release promulgated or issued thereunder, that prohibits the consummation
of the Post-Closing or if the consummation of the Post-Closing would
violate any non-appealable final judgment, order, decree, ruling or
injunction of any court of or governmental authority having competent
jurisdiction;
(ii) the Post-Closing shall not have occurred by the Post-Closing
Date through no fault of the Company;
(iii) the common stock of ISV is not registered under Section 12
of the Exchange Act;
(iv) ISV is not current in its reporting obligations under
Section 13 or 15(d) of the Exchange Act;
(v) an event occurs prior to the Post-Closing requiring ISV to
report such event to the SEC on Form 8-K and not otherwise set forth in
Schedule 5.1, provided, however, such event shall only include the
following items under Form 8-K: Item 1; Item 2 to the extent that any event
is reported under Item 2 that involves a change in the nature of ISV's
business; Item 3; Item 4 (provided further, that as to Item 4, only if the
event requires disclosure under Item 304 (a)(1)(iv) or under Regulation
S-K); Item 9; or Item 12;
(vi) the Company causes the Post-Closing to not occur by the
Post-Closing Date;
(vii) trading in the common stock of ISV has been suspended,
delisted, or otherwise ceased by the Commission or the NASD or other
exchange or the Nasdaq (whether the National Market or otherwise), except
for (a) any suspension of trading of limited duration solely to permit
dissemination of material information regarding ISV, and not reinstated or
listed on another exchange, market or OTCBB within ten (10)
28
Trading Days and (b) any general suspension of trading for all companies
trading on such exchange or market or OTCBB; or
(viii) the Company fails to deliver or cause to be delivered the
Debentures and Escrow Shares as required by and by the date set forth in
Section 2.2 hereof.
(b) Prior to Post-Closing by the Purchaser, by giving written notice
of such termination to the Company, if the Company has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
the other Transaction Documents and such breach is not cured within five (5)
Business Days following receipt by the Company of notice of such breach.
(c) Prior to Post-Closing by the Company, by giving written notice of
such termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
the other Transaction Documents and such breach is not cured within five (5)
Business Days following receipt by the Purchaser of notice of such breach.
5.2 Remedies. Notwithstanding anything else contained herein to the
contrary, if an Event of Default has occurred pursuant to Section 5.1, and only
with respect to Section 5.1(b) has not been cured within the cure period
provided for therein, the defaulting party shall be deemed in default hereof and
the non-defaulting party shall be entitled to pursue all available rights
without further notice. The defaulting party shall pay all attorney's fees and
costs incurred in enforcing this Agreement and the other Transaction Documents.
In addition, all unpaid amounts shall accrue interest at a rate of 8% per annum.
ARTICLE VI
LEGAL FEES AND DEFAULT INTEREST RATE
In the event any party hereto commences legal action to enforce its rights
under this Agreement or any other Transaction Document, the non-prevailing party
shall pay all reasonable costs and expenses (including but not limited to
reasonable attorney's fees, accountant's fees, appraiser's fees and
investigative fees) incurred in enforcing such rights. In the event of an
uncured Event of Default by any party hereunder, interest shall accrue on all
unpaid amounts due the aggrieved party at the rate of 8% per annum, compounded
annually.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. Except as set forth in this Agreement or in the
Retainer Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay the
29
fees of $5,000 to the Escrow Agent as set forth in Section 4.27 hereto and all
stamp and similar taxes and duties levied in connection with the issuance of the
Debentures (and, upon conversion, the Underlying Shares) pursuant hereto. The
Purchaser shall be responsible for any taxes (other than income taxes) payable
by the Purchaser that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement or any other Transaction Document.
Whether or not the transactions contemplated hereby and thereby are consummated
or this Agreement is terminated. The Company shall pay (i) all costs, expenses,
fees and all taxes incident to and in connection with: (A) the preparation,
printing and distribution of any registration statement required hereunder and
all amendments and supplements thereto (including, without limitation, financial
statements and exhibits), and all preliminary and final Blue Sky memoranda and
all other agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith, (B) the issuance and delivery of the
Securities, (C) the exemption from registration of the Securities for offer and
sale to the Purchaser under the securities or Blue Sky laws of the applicable
jurisdiction, (D) furnishing such copies of any registration statement required
hereunder, the preliminary and final prospectuses and all amendments and
supplements thereto, as may reasonably be requested for use in connection with
resales of the Securities, and (E) the preparation of certificates for the
Securities (including, without limitation, printing and engraving thereof), (ii)
all fees and expenses of counsel and accountants of the Company and (iii) all
expenses and fees of listing on securities exchanges, if any. ISV entered into a
certain retainer agreement with G&P, dated August 26, 2003 to cover the fees and
expenses delineated therein (the "Retainer Agreement").
7.2 Entire Agreement; Amendments. This Agreement, together with all of the
Exhibits and Schedules annexed hereto, the Retainer Agreement and any other
Transaction Document contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters. This Agreement
shall be deemed to have been drafted and negotiated by both parties hereto and
no presumptions as to interpretation, construction or enforceability shall be
made by or against either party in such regard.
7.3 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed to have been duly given only
if delivered to the party personally or sent to the party by facsimile upon
electronic confirmation and receipt (promptly followed by a hard-copy delivered
in accordance with this Section 7.3) or three days after being mailed by
registered or certified mail (return receipt requested), with postage and
registration or if sent by nationally recognized overnight courier, one day
after being mailed certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to the Company,: Ophthamalic Solutions, Inc.
Prior to the Post- 00000 Xxxxx Xxxx, Xxxxx X
Closing Date: Xxxx Xxxxx, XX 00000
Attn: Jehu Hand, President
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Company,
30
after the Post-Closing
Date: Opthamalic Solutions, Inc.
c/o Insite Vision Incorporated
000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to: O'Melveny & Xxxxx
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn.: Xxxxxxx Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Purchaser: See Schedule 1 attached hereto
With copies to: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Escrow Agent: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
or such other address as may be designated hereafter by notice given pursuant to
the terms of this Section 7.3.
7.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchaser, or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
7.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
31
7.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. This Agreement and any of the rights, interests or obligations
hereunder may be assigned by the Purchaser to an accredited investor without the
consent of the Company as long as such assignee agrees to be bound by this
Agreement. This Agreement and any of the rights, interests or obligations
hereunder may not be assigned by the Company without the prior written consent
of the Purchaser. It is agreed that the Company may assign all of the rights,
interests and obligations hereunder to ISV pursuant to the Merger Agreement.
7.7 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, except in accordance with Section 4.16 and Section 7.14.
7.8 Governing Law; Venue; Service of Process. The parties hereto
acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The parties
hereto agree that the internal laws of the State of New York shall govern this
Agreement and the exhibits hereto, including, but not limited to, all issues
related to usury. Any action to enforce the terms of this Agreement or any of
its exhibits shall be brought exclusively in the state and/or federal courts
situated in the County and State of New York. Service of process in any action
by the Purchaser to enforce the terms of this Agreement may be made by serving a
copy of the summons and complaint, in addition to any other relevant documents,
by commercial overnight courier to the Company at its principal address set
forth in this Agreement.
7.9 Survival. The agreements and covenants of the parties contained in
Article IV and this Article VII shall survive the Post-Closing (or any earlier
termination of this Agreement) so long as any of the Securities are outstanding.
7.10 Counterpart Signatures. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
7.11 Publicity. The Company and the Purchaser shall consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and neither party shall issue any such
press release or otherwise make any such public statement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, unless counsel for the disclosing party deems such public statement
to be required by applicable federal and/or state securities laws. Except as
otherwise required by applicable law or regulation, the Company will not
disclose to any third party the names of the Purchaser.
32
7.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefore, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
7.13 Limitation of Remedies. With respect to claims by the Company or the
Purchaser or any person acting by or through the Company or the Purchaser for
remedies at law or at equity relating to or arising out of a breach of this
Agreement, liability, if any, shall, in no event, include loss of profits or
incidental, indirect, exemplary, punitive, special or consequential damages of
any kind.
7.14 Confidential Information. The Company and the Purchaser each
represents to ISV that, at all times, they have maintained in confidence all
non-public information regarding ISV (including the existence of the
transactions contemplated herein) received by them from ISV or its agents, and
covenants that it they will continue to maintain in confidence such information
until such information (a) becomes generally publicly available other than
through a violation of this provision by the Company and the Purchaser, or any
of their respective agents or (b) is required to be disclosed in legal
proceedings (such as by deposition, interrogatory, request for documents,
subpoena, civil investigation demand, filing with any governmental authority or
similar process), provided, however, that before making any use or disclosure in
reliance on this subparagraph (b) the Company and the Purchaser, as applicable,
shall give ISV at least fifteen (15) days prior written notice (or such shorter
period as required by law) specifying the circumstances giving rise thereto and
will furnish only that portion of the non-public information which is legally
required and will exercise its best efforts to obtain reliable assurance that
confidential treatment will be accorded any non-public information so furnished.
7.15 Omnibus Provision. Anything contained herein or in the other
Transaction Documents notwithstanding, in the event that the Common Stock shall
become listed on the AMEX and subsequently ceases to be listed for trading on
the AMEX, then any reference thereto in this Agreement or the other Transaction
Documents shall be deemed to be a reference to (a) the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading, or (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange, Nasdaq, or (c) if the Common Stock is not then
listed or admitted to trading on Nasdaq, OTCBB, or (d) if the Common Stock is
not then listed or admitted to trading on OTCBB, then the over-the-counter
market reported by the Pinksheets LLC (or similar organization or agency
succeeding to its functions of reporting prices).
[Signature Page Follows]
33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
OPHTHALMIC SOLUTIONS, INC.
By: /s/ Jehu Hand
------------------------------
Name: Jehu Hand
Title: Chief Executive Officer
Purchaser:
HEM MUTUAL ASSURANCE LLC
By: /s/ Xxxxxx Xxxxxxxx
------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Manager
34
Schedule 1
Purchaser(s)
------------------------------------------------
Name and Address of Purchaser Full Amount of
Debentures to be
Purchased
------------------------------------------------
HEM Mutual Assurance LLC
One Xxxxx Center $1,000,000
0000 00xx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
------------------------------------------------
35
