EXHIBIT 10.17
SECURITIES PURCHASE AGREEMENT-A
THIS SECURITIES PURCHASE AGREEMENT-A, dated as of the date of
acceptance set forth below, is entered into by and between AMBIENT CORPORATION,
a Delaware corporation with headquarters located at 00 Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxx, XX 00000 (the "Company"), and each individual or entity named on a
signature page hereto (as used herein, each such signatory is referred to as the
"Lender") (each agreement with a Lender being deemed a separate and independent
agreement between the Company and such Lender, except that each Lender
acknowledges and consents to the rights granted to each other Lender [each, an
"Other Lender"] under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Lender are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded, INTER ALIA,
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Lender wishes to lend funds to the Company, subject to
and upon the terms and conditions of this Agreement and acceptance of this
Agreement by the Company, the repayment of which will be represented by 6%
Convertible Debentures Series 03-2 of the Company (the "Convertible
Debentures"), which Convertible Debentures will be convertible into shares of
Common Stock, $.001 par value per share, of the Company (the "Common Stock"),
upon the terms and subject to the conditions of such Convertible Debentures,
together with the Warrants (as defined below) exercisable for the purchase of
shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE.
(i) Subject to the terms and conditions of this Agreement and the
other Transaction Agreements, the undersigned hereby agrees to loan to the
Company the principal amount set forth on the Lender's signature page of this
Agreement (the "Aggregate Purchase Price"), out of the aggregate amount being
loaned by all Lenders of $_____________1 (the "Total Purchase Price").
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1 Amount to be inserted at Initial Closing Date (as defined below), not less
than $2,000,000 [provided,
(ii) The Aggregate Purchase Price shall be payable by the Lender to
the Company as follows: (a) fifty percent (50%) of the Aggregate Purchase Price
(the "Initial Purchase Price") shall be deposited by the Lender with the Escrow
Agent on or before the Initial Closing Date and shall be paid to the Company
within two Trading Days after the Company files the Registration Statement, as
provided below and in the Joint Escrow Instructions (as those terms are defined
below) and (b) fifty percent (50%) of the Aggregate Purchase Price (the
"Additional Purchase Price") shall be paid to the Company on the Additional
Closing Date (as defined below). The applicable portion of the Aggregate
Purchase Price paid on the relevant Closing Date (as defined below) is referred
to as the "Purchase Price" for such Closing Date.
(iii) The obligation to repay the loan of the relevant Purchase Price
from the Lender shall be evidenced by the Company's issuance of one or more
Convertible Debentures to the Lender in such principal amount (the Convertible
Debentures issued to the Lender, the "Debentures"). Each Debenture (i) shall
provide for a conversion price (the "Conversion Price"), which shall initially
be the Fixed Conversion Price (as defined below), which price may be adjusted
from time to as provided in the Debenture or in the other Transaction
Agreements, and (ii) shall have the terms and conditions of, and be
substantially in the form attached hereto as, ANNEX I. The loan to be made by
the Lender and the issuance of the Debentures and the Warrants to the Lender are
sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Debentures and Warrants.
(iv) The Purchase Price to be paid by the Lender shall be equal to
the face amount of the Debentures being purchased on the relevant Closing Date
(as defined below) and shall be payable in United States Dollars.
(v) With respect to the Initial Closing Date, the Company will
deliver the relevant Certificates to the Escrow Agent within five (5) Trading
Days (as those terms are defined below) after the Escrow Agent notifies the
Company that the Escrow Agent has on deposit cleared funds (or equivalents)
equal to (x) at least $1,000,000 of the Initial Purchase Price for one or more
Lenders and (y) thereafter, any additional Initial Purchase Price. Such
Certificates shall be held in escrow as provided in the Joint Escrow
Instruction.
(vi) With respect to the Additional Closing Date, the Company will
deliver the relevant Certificates to the Escrow Agent as provided in Section
6(b) hereof.
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however, that this amount may be less if the Company provides the Escrow Agent
with an Additional Financing Notice, as defined in Section 6(c)(v) below, on or
before that date] and not more than $3,000,000.
2
B. CERTAIN DEFINITIONS. As used herein, each of the following terms
has the meaning set forth below, unless the context otherwise requires:
"Additional Closing Date" means the date of the closing of the
purchase and sale of the Additional Debentures and the Additional Warrants, as
provided herein.
"Additional Debentures" means the Debentures issued on the Additional
Closing Date.
"Additional Warrants" means the Warrants issued on the Additional
Closing Date.
"Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
"Bid Price" shall mean the 4:00 P.M. closing bid price of the Common
Stock on the Principal Trading Market on the relevant Trading Day(s).
"Certificates" means the relevant Debentures and the relevant
Warrants, each duly executed by the Company and issued on the relevant Closing
Date in the name of the Lender.
"Closing Date" means the relevant Initial Closing Date or the
Additional Closing Date.
"Company Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Company
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures (including, if relevant, accrued interest on the
Debentures so converted).
"Disclosure Letter" means a letter and any modifications thereof, the
latest of which is dated at least two Trading Days prior to the Initial Closing
Date, from the Company to the Lenders.
"Effective Date" means the date the Registration Statement covering
the Registrable Securities is declared effective by the SEC.
"Escrow Agent" means the escrow agent identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions").
"Escrow Funds" means the Purchase Price delivered to the Escrow Agent
as contemplated by Sections 1(c) and (d) hereof.
"Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
"Finder" means Advisor Associates, Inc.
"Fixed Conversion Price" means $0.12 (as that amount may be adjusted
as provided in the Debenture or herein).
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Initial Closing Date" means the date of the closing of the purchase
and sale of the Initial Debentures and the Initial Warrants, as provided herein;
provided, however, that the Company and the Lender agree that the Escrow
Property for the Initial Closing Date shall continue to be held in escrow after
the Initial Closing Date until released as provided in Section 6 hereof.
"Initial Debentures" means the Debentures issued on the Initial
Closing Date.
"Initial Warrants" means the Warrants issued on the Initial Closing
Date.
"Last Audited Date" means December 31, 2002.
"Lender Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Lender
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"Majority in Interest of the Holders" means one or more Holders whose
respective Aggregate Purchase Prices aggregate more than fifty percent (50%) of
the Total Purchase Price.
"Material Adverse Effect" means an event or combination of events,
which individually or in the aggregate, would reasonably be expected to (w)
adversely affect the legality, validity or enforceability of the Securities or
any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, prospects, or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole, (y)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Agreements or the transactions
contemplated thereby, or (z) materially and adversely affect the value of the
rights granted to the Lender in the Transaction Agreements.
"Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
"Principal Trading Market" means the Over the Counter Bulletin Board
Market.
"Registrable Securities" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as ANNEX IV as executed by the Lender and
the Company simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration statement
covering the Registrable Securities.
"Reporting Service" means Bloomberg LP or if that service is not then
reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by a Majority in Interest of
the Holders and reasonably acceptable to the Company.
"Securities" means the Debentures, the Warrants and the Shares.
"Shares" means the shares of Common Stock representing any or all of
the Conversion Shares and the Warrant Shares.
"State of Incorporation" means Delaware.
"Trading Day" means any day during which the Principal Trading Market
shall be open for business.
"Transaction Agreements" means the Securities Purchase Agreement, the
Registration Rights Agreement, the Debentures, the Joint Escrow Instructions,
and the Warrants, and includes all ancillary documents referred to in those
agreements.
"Transfer Agent" means, at any time, the transfer agent for the
Company's Common Stock.
"Warrants" means the Initial Warrants or the Additional Warrants or
both of them, as the context may require.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
C. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Lender shall pay the relevant Purchase Price by delivering
immediately available good funds in United States Dollars to the Escrow Agent no
later than the
date prior to the relevant Closing Date.
(ii) No later than the Initial Closing Date, but in any event
promptly following payment by the Lender to the Escrow Agent of the Initial
Purchase Price, the Company shall deliver the Certificates for the Initial
Debentures and the Initial Warrants, each duly executed on behalf of the Company
and issued in the name of the Lender, to the Escrow Agent. The Company will
deliver the Certificates for the Additional Debentures and the Additional
Warrants to the Escrow Agent as provided in Section 6 hereof.
(iii) By signing this Agreement, each of the Lender and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
D. METHOD OF PAYMENT. Payment into escrow of the relevant Purchase
Price shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx LLP
Account No.: [To be provided to the Lender by
Xxxxxxx & Prager LLP]
Re: Ambient 10/03 Transaction
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Lender represents and warrants to, and covenants and agrees with,
the Company as follows:
A. Without limiting Lender's right to sell the Securities pursuant
to an effective registration statement or otherwise in compliance with the 1933
Act, the Lender is purchasing the Securities for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
B. The Lender is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with
the transactions described in this Agreement, and the related documents, and to
evaluate the merits and risks of an investment in the Securities, and (iv) able
to afford the entire loss of its investment in the Securities.
C. All subsequent offers and sales of the Securities by the Lender
shall be made pursuant to registration of the relevant Securities under the 1933
Act or pursuant to an exemption from registration.
D. The Lender understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
E. The Lender and its advisors, if any, have been furnished with or
have been given access to all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Debentures and the Warrants which have been requested by the Lender, including
those set forth on in any annex attached hereto. The Lender and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and its
management and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Lender has also
had the opportunity to obtain and to review the Company's filings on XXXXX
listed on ANNEX VI hereto (the documents listed on such Annex VI, to the extent
available on XXXXX or otherwise provided to the Lender as indicated on said
Annex VI, collectively, the "Company's SEC Documents").
F. The Lender understands that its investment in the Securities
involves a high degree of risk and has reviewed the material under the caption
"Risk Factors" contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002 listed on Annex VI.
G. The Lender hereby represents that, in connection with its
purchase of the Securities, it has not relied on any statement or representation
by the Company or the Finder or any of their respective officers, directors and
employees or any of their respective attorneys or agents or the Finder, except
as specifically set forth herein. The Finder is a third party beneficiary of
this provision.
H. The Lender understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
I. This Agreement and the other Transaction Agreements to which the
Lender is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Lender and are valid
and binding agreements
of the Lender enforceable in accordance with their respective terms, subject as
to enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants
to the Lender as of the Initial Closing Date that, except as otherwise provided
in the DISCLOSURE LETTER hereto or in the Company's SEC Documents:
A. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no
preemptive rights of any shareholder of the Company, as such, to acquire the
Debentures, the Warrants or the Shares. No party has a currently exercisable
right of first refusal which would be applicable to any or all of the
transactions contemplated by the Transaction Agreements.
B. STATUS. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is listed and quoted on the Principal Trading
Market. The Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing and quotation
on the Principal Trading Market, and the Company has maintained all requirements
on its part for the continuation of such listing and quotation.
C. AUTHORIZED SHARES. The authorized capital stock of the Company
consists of (i) 200,000,000 shares of Common Stock, $.001 par value per share,
of which approximately 76,318,772 are outstanding, and (ii) 5,000,000 shares of
Convertible Preferred Stock, $.001 par value per share, of which none are
outstanding as of the date hereof. All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
non-assessable. The Company has sufficient authorized and unissued shares of
Common Stock as may be necessary to effect the issuance of the Shares. As of the
Initial Closing Date, the Shares shall have been duly authorized by all
necessary corporate action on the part of the Company, and, when issued on the
conversion of, or as interest on, the Debentures in accordance with their terms
or upon exercise of the Warrants in accordance with their terms, will be duly
and validly issued, fully paid and non-assessable and will not subject the
Holder thereof to personal liability by reason of being such Holder.
D. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each of the
other Transaction Agreements, and the transactions contemplated thereby, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Debentures,
the Warrants and each of the other
Transaction Agreements, when executed and delivered by the Company, will be,
valid and binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement
and each of the other Transaction Agreements by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Debentures, the Warrants and the other
Transaction Agreements do not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under (i) the certificate of incorporation or by-laws of the Company, each as
currently in effect, (ii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, including any listing agreement
for the Common Stock except as herein set forth, or (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have or result in a Material Adverse Effect.
F. FILINGS. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Since September 1, 2002, the Company has timely filed all
requisite forms, reports and exhibits thereto required to be filed by the
Company with the SEC.
G. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date, there
has been no material adverse change and no Material Adverse Effect, except as
disclosed in the Company's SEC Documents. Since the Last Audited Date, except as
provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts owed to the Company by any third party or claims of the
Company against any third party, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in compensation to senior employees, except in the ordinary course of
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
H. FULL DISCLOSURE. To the best of the Company's knowledge, there is
no fact known to the Company (other than general economic conditions known to
the public generally or as disclosed in the Company's SEC Documents) that has
not been disclosed in writing to the Lender that would reasonably be expected to
have or result in a Material Adverse Effect.
I. ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
before or by any governmental authority or nongovernmental department,
commission, board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of the
Transaction Agreements. The Company is not aware of any valid basis for any such
claim that (either individually or in the aggregate with all other such events
and circumstances) could reasonably be expected to have a Material Adverse
Effect. There are no outstanding or unsatisfied judgments, orders, decrees,
writs, injunctions or stipulations to which the Company is a party or by which
it or any of its properties is bound, that involve the transaction contemplated
herein or that, alone or in the aggregate, could reasonably be expect to have a
Material Adverse Effect.
J. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a Material Adverse Effect.
K. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR EVENTS.
Based on information provided to the Company by the Company Control Persons, to
the best of the Company's knowledge, none of the following has occurred during
the past five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar officer
was appointed by a court for the business or property of such Company
Control Person, or any partnership in which he was a general partner at or
within two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or within two
years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding or
is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other Person regulated
by the Commodity Futures Trading Commission ("CFTC") or engaging
in or continuing any conduct or practice in connection with such
activity;
(ii) engaging in any type of business practice; or (iii) engaging
in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for more than 60
days the right of such Company Control Person to engage in any activity
described in paragraph (3) of this item, or to be associated with Persons
engaged in any such activity; or
(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended,
or vacated.
L. NO UNDISCLOSED LIABILITIES OR EVENTS. To the best of the
Company's knowledge, the Company has no liabilities or obligations other than
those disclosed in the Transaction Agreements or the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since the Last
Audited Date, or which individually or in the aggregate, do not or would not
have a Material Adverse Effect. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
M. NO DEFAULT. Neither the Company nor any of its subsidiaries is in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it or its property is bound.
N. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since March 1, 2003, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
O. DILUTION. The number of shares issuable on conversion of the
Debentures and upon exercise of the Warrants may have a dilutive effect on the
ownership interests of the other shareholders (and Persons having the right to
become shareholders) of the Company. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have such a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Conversion
Shares upon conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company, and the Company will honor such obligations, including honoring
every Notice of Conversion (as contemplated by the Debentures) and every Notice
of Exercise (as contemplated by the Warrants), unless the Company is subject to
an injunction (which injunction was not sought by the Company) prohibiting the
Company from doing so.
P. FEES TO BROKERS, FINDERS AND OTHERS. Except for payment of the
fees to the Finder's Compensation (as defined below) to the Finder, payment of
which is the sole responsibility of the Company, the Company has taken no action
which would give rise to any claim by any Person for brokerage commission,
finder's fees or similar payments by Lender relating to this Agreement or the
transactions contemplated hereby. Lender shall have no obligation with respect
to such fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this paragraph that may be due in connection
with the transactions contemplated hereby. The Company shall indemnify and hold
harmless each of Lender, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred. The term "Finder's Compensation" means, in connection with the
consummation of the transactions contemplated by this Agreement, (1) a cash fee
and expense allowance in the amount contemplated by the Joint Escrow
Instructions, (2) a cash fee equal to ten percent (10%)
of the Exercise Price (as defined in the Warrant) paid by a Holder upon exercise
of a Warrant, and (3) warrants to purchase Common Stock for a number of shares
equal to ten percent (10%) of the Warrant Shares for all Lenders.
Q. CONFIRMATION. The Company confirms that all statements of the
Company contained herein shall survive acceptance of this Agreement by the
Lender. The Company agrees that, if any events occur or circumstances exist
prior to the relevant Closing Date or the release of the relevant Purchase Price
to the Company which would make any of the Company's representations,
warranties, agreements or other information set forth herein materially untrue
or materially inaccurate as of such date, the Company shall immediately notify
the Lender (directly or through its counsel, if any) and the Escrow Agent in
writing prior to such date of such fact, specifying which representation,
warranty or covenant is affected and the reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS.
(i) The Lender acknowledges that (1) the Securities have not been and
are not being registered under the provisions of the 1933 Act and, except as
provided in the Registration Rights Agreement or otherwise included in an
effective registration statement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Lender shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
(ii) In addition to the foregoing, and not in lieu thereof, the Lender
agrees that, without the express written consent of the Company in each
instance, it will not transfer a Debenture or a Warrant to any Person which is
known to be (i) in the same business as the Company, (ii) a utility or other
provider of electric service, (iii) an internet service provider or other
provider of broadband services, or (iv) any subsidiary or affiliate of the
either of the foregoing.
B. RESTRICTIVE LEGEND. The Lender acknowledges and agrees that,
until such time as the relevant Shares have been registered under the 1933 Act,
as contemplated by the
Registration Rights Agreement and sold in accordance with an effective
Registration Statement or otherwise in accordance with another effective
registration statement, the certificates and other instruments representing any
of the Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of any such
Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
C. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Lender promptly after such filing.
D. REPORTING STATUS. So long as the Lender beneficially owns any of
the Securities, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable
action under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it at least through the date which is sixty (60) days after the
later of the date on which (x) all of the Debentures have been converted or been
paid in full or (y) all of the Warrants have been exercised or have expired.
E. USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for Finder's Compensation in
connection with the sale of the Securities or legal and escrow fees contemplated
by the Joint Escrow Instructions) (i) first, to the satisfaction in full of the
outstanding obligations, if any, under that certain $400,000 6% Convertible
Debenture Series 03-1 Due October 31, 2003 originally issued by the Company on
or about September 8, 2003 (the "Series 03-1 Debenture"), and (ii) then, for
general corporate purposes.
F. WARRANTS. The Company agrees to issue to the Lender on each
Closing Date transferable warrants (the "Warrants"), with cashless exercise
rights (subject to certain conditions provided in the Warrants), for the
purchase of one (1) share of Common Stock for each two (2) Issue Date Conversion
Shares (as defined below). The exercise price of the Warrants will be equal to
$0.25, subject to adjustment as provided in the Warrant. The Warrants will
expire on the last day of the calendar month in which the third annual
anniversary of the relevant Closing Date occurs, subject to earlier expiration
as provided in the Warrants. Each of the Warrants shall be in the form annexed
hereto as ANNEX V. The Warrant Shares shall be subject to the provisions of the
Registration Rights Agreement. The term "Issue Date Conversion Share" means the
number of shares of Common Stock equal to (x) the Purchase Price for the
relevant Closing Date, divided by (y) the Conversion Price in effect on such
Closing Date.
G. CERTAIN AGREEMENTS.
(i) The Company covenants and agrees that, except for the sale of
Debentures and Warrants to the Other Lenders and subject to the other provisions
of this Section 4(g), during the period (the "New Transaction Period") from the
Initial Closing Date and continuing through and including the Final Lock-up Date
(as defined below), it will not, without the prior written consent of a Majority
in Interest of the Holders in each instance, enter into any subsequent or
further offer or sale of Common Stock or securities convertible into and/or
other rights exercisable for the issuance of Common Stock (collectively, "New
Common Stock") to or with any third party (any such offer or sale of New Common
Stock, a "New Transaction"). The term "Final Lock-up Date" means the date which
is the one hundred thirty-five (135) days after the Effective Date, but not
counting for such purposes the days, if any, during which sale of Registrable
Securities was suspended after the Effective Date.1
(ii) In the event there is a New Transaction which breaches the
provisions of this Section 4(g) (it being understood by the parties that a
Specified New Transaction or an Excluded New Transaction, as those terms are
defined below, does not constitute such a breach),
(A) the Conversion Price on any Unconverted Debenture (as defined in the
Debenture) or on any Additional Debenture to be issued on a later date
shall be adjusted to an amount (the "Adjusted Conversion Price") equal to
the lowest of (1) ninety percent (90%) of the then existing Conversion
Price, or (2) eighty percent (80%) of the of the lower of (X) the lowest
fixed purchase price of any shares of the New Common Stock contemplated in
the New Transaction or (Y) the lowest conversion price which would be
applicable under the terms of the New Transaction;
--------------------
1 By way of illustration: If the sale of Registrable Securities was suspended
for ten (10) days in the interim, the applicable Final Lock-up Date will be one
hundred forty-five (145) days after the Effective Date. If on the 138th day
after the Effective Date, the sale of Registrable Securities was suspended again
for five (5) days, the Final Lock-up Date will be one hundred fifty (150) days
after the Effective Date.
(B) with respect to all portions of the principal and interest of any
Debenture converted prior to such date (or converted before the adjustment
referred to in the immediately preceding subparagraph (A) is effected), the
Company will issue to the Holder additional shares of Common Stock
("Additional Shares") equal to the excess, if any, of (1) (X) the aggregate
amount of the principal and accrued interest of the Debenture so converted,
divided by (Y) the Adjusted Conversion Price, over (2) the number of
Conversion Shares and Additional Shares, if any, previously issued in
connection with such conversion;
(C) if the provisions of the debenture or similar instrument (howsoever
denominated), if any, of the New Transaction are more beneficial to the
holder of such instrument than the corresponding terms of the Debenture,2
or if the terms which are beneficial to the Company in the Debenture are
not included in the corresponding instrument in the New Transaction,3 then,
unless waived by the Holder, the Debenture terms shall be modified to
reflect similar terms (based on the original issue date of the Debentures);
(D) the number of Warrants issued or be issued on a subsequent date shall
be adjusted to equal the higher of (1) the number of Warrant Shares
originally contemplated by this Agreement or (2) the number of shares equal
to fifty percent (50%) of (I) the Purchase Price divided by (II) the lower
of (x) the Bid Price for the Trading Day immediately preceding the initial
closing date of the New Transaction or (y) Adjusted Conversion Price for
the initial closing date of the New Transaction; and
(E) the Exercise Price on the Warrants shall be adjusted to equal the
lowest of (1) the then existing Warrant Price, (2) the lowest Warrant Price
applicable to the New Transaction, or (3) twice the Adjusted Conversion
Price;
(F) if the provisions of the warrant, option or similar instrument
(howsoever denominated), if any, of the New Transaction are more beneficial
to the holder of such instrument than the corresponding terms of the
Warrant, 4 or if the terms which are beneficial to the Company in the
Debenture are not included in the corresponding instrument in the New
Transaction,5 then, unless waived by the Holder, the Warrant terms shall be
modified to reflect similar terms (based on the original issue date of the
Warrants); and
--------------------
2 Without limiting the foregoing, by way of example: the maturity date of the
instrument in the Specified New Transaction is more than three years from its
original issue date .
3 Without limiting the foregoing, by way of example: the instrument does not
provide that the Company may redeem the instrument or give notice requiring a
mandatory conversion prior to the maturity date or does not provide for
mandatory conversion on the maturity date.
4 Without limiting the foregoing, by way of example: the expiration date of the
instrument in the New Transaction is more than three years from its original
issue date.
(G) the Holder will have such other rights as are provided in the
Debenture.
(iii) Anything in the foregoing provisions of this Section 4(g) to the
contrary notwithstanding, during the New Transaction Period, the Lender hereby
gives the Lender's consent to the Company's entering into a New Transaction
which is a Permitted New Transaction (as defined below) or an Allowed New
Transaction (as defined below) during the New Transaction Period (and any
Permitted New Transaction or any Allowed New Transaction shall not be deemed a
breach of the provisions of this Section 4(g)), provided, however, that if there
is a Permitted New Transaction or an Allowed New Transaction (collectively,
"Specified New Transactions"):
(A) the Conversion Price on any Unconverted Debenture or any Additional
Debenture to be issued at a subsequent date shall be adjusted to an amount
(the "Alternative Conversion Price") equal to the lower of (1) the then
existing Conversion Price, or (2) the lower of (X) the lowest fixed
purchase price of any shares of the New Common Stock contemplated in the
Specified New Transaction or (Y) the lowest conversion price which would be
applicable under the terms of the Specified New Transaction;
(B) with respect to all portions of the principal and interest of any
Debenture converted prior to such date (or converted before the adjustment
referred to in the immediately preceding subparagraph (A) is effected), the
Company will issue to the Holder additional shares of Common Stock
("Additional Shares") equal to the excess, if any, of (1) (X) the aggregate
amount of the principal and accrued interest of the Debenture so converted,
divided by (Y) the Alternative Conversion Price, over (2) the number of
Conversion Shares, if any, previously issued in connection with such
conversion;
(C) if the provisions of the debenture or similar instrument (howsoever
denominated), if any, of the Specified New Transaction are more beneficial
to the holder of such instrument than the corresponding terms of the
Debenture,6 or if the terms which are beneficial to the Company in the
Debenture are not included
--------------------
5 Without limiting the foregoing, by way of example: the instrument in the New
Transaction does not provide that the Company may accelerate the expiration date
of the instrument.
6 Without limiting the foregoing, by way of example: the maturity date of the
instrument in the Specified New Transaction is more than three years from its
original issue date or provides for cashless exercise rights for a period which
is longer than that contemplated by the Warrants.
in the corresponding instrument in the Specified New Transaction,7 then,
unless waived by the Holder, the Debenture terms shall be modified to
reflect similar terms (based on the original issue date of the Debentures);
(D) the number of Warrants shall be adjusted to equal the higher of (1)
the number of Warrant Shares originally provided in the Warrants or (2) the
number of shares equal to (x) (I) the higher of fifty percent (50%) or (II)
the Alternative Warrant Percentage (as defined below) of (y) (I) the
Purchase Price divided by (II) the Conversion Price or, if lower, the
Alternative Conversion Price for the initial closing date of the Specified
New Transaction;
(E) the Exercise Price on the Warrants shall be adjusted to equal the
lower of (1) the then existing Warrant Price, or (2) the lowest Warrant
Price applicable to the Specified New Transaction; and
(F) if the provisions of the warrant, option or similar instrument
(howsoever denominated), if any, of the Specified New Transaction are more
beneficial to the holder of such instrument than the corresponding terms of
the Warrant, 8 or if the terms which are beneficial to the Company in the
Debenture are not included in the corresponding instrument in the Specified
New Transaction,9 then, unless waived by the Holder, the Warrant terms
shall be modified to reflect similar terms (based on the original issue
date of the Warrants).
(iv) The term "Permitted New Transaction" means a New Transaction for
the sale of common stock or convertible debentures and warrants, subject to the
following terms, conditions and adjustments: (A) such offer and sale shall be
made only to accredited investors; (B) the maximum amount raised in such offer
and sale (before payment of fees and expenses) shall be $5,000,000 less the
Total Purchase Price.
(v) The term "Allowed New Transaction" means a New Transaction other
than a Permitted New Transaction, subject to the following terms, conditions and
adjustments: (A) such offer and sale shall be made only to accredited investors;
and (B) by the terms of such New Transaction a registration statement covering
the re-sale of the securities purchased in such New Transaction (or issuable on
conversion or exercise of securities issued in connection with
--------------------
7 Without limiting the foregoing, by way of example: the instrument in the
Specified New Transaction does not provide that the Company may redeem the
instrument or give notice requiring a mandatory conversion prior to the maturity
date or does not provide for mandatory conversion on the maturity date.
8 Without limiting the foregoing, by way of example: the expiration date of the
instrument in the Specified New Transaction is more than three years from its
original issue date.
9 Without limiting the foregoing, by way of example: the instrument does not
provide that the Company may accelerate the expiration date of the instrument or
provides for cashless exercise rights for a period which is longer than that
contemplated by the Warrants.
such New Transaction) may not be filed earlier than six (6) months after the
Effective Date;
(vi) The term "Alternative Warrant Percentage" means (x) the number
of shares which are eligible to be purchased under the warrant, option or other
right (howsoever denominated) issued in the New Transaction ("New Transaction
Warrants"), including any Specified New Transaction, divided by (y) the
aggregate of the shares of New Common Stock issued or issuable in such
transaction (excluding the shares issuable on exercise of the New Transaction
Warrants).
(vii) The foregoing provisions of Section 4(g) do not apply to the
issuance of New Common Stock (a) in connection with a Person's exercise of
conversion or other rights it may have under documents executed and transactions
consummated prior to the date of this Agreement, (b) pursuant to an Employee
Stock Option Plan (an "ESOP") of the Company, such ESOP having been properly
approved by the shareholders of the Company prior to the date of this Agreement,
(c) pursuant to a Non-Employee Directors' Stock Option Plan (a "NDSOP") of the
Company, provided that not more than 250,000 shares are issued under the NDSOP
for each 90-day calendar period and such NDSOP having been properly approved by
the shareholders of the Company prior to the date of this Agreement, or (d)
acquisitions of controlling interests in other corporations by the Company. Any
issuance contemplated by this subparagraph (vii) is referred to as an "Excluded
New Transaction."
(viii) Nothing in the foregoing provisions reflects either an
obligation on the part of any Lender to participate in any New Transaction,
including any Specified New Transaction or a limitation on any Lender from
participating in any New Transaction, including any Specified New Transaction.
Nothing in this Agreement shall give any Lender a right of first refusal with
respect to any New Transaction, including any Specified New Transaction.
(ix) Any of the foregoing provisions of this Section 4(g) or any
other provision of this Agreement or any of the other Transaction Agreements to
the contrary notwithstanding, the Company shall not engage in any offers, sales
or other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Agreements.
H. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, a number of
shares (the "Minimum Available Shares") at least equal to (x) one hundred
twenty-five percent (125%) of the number of shares of Common Stock issuable as
may be required to satisfy the conversion rights of the Holders of principal on
all outstanding Convertible Debentures plus (y) one hundred ten percent (110%)
of the number of shares issuable upon exercise of all outstanding Warrants held
by all Holders (in each case, whether such Convertible Debentures or Warrants
were originally issued to the Holder, the Lender or to any other party). For the
purposes of such calculations, the Company should assume that all Debentures,
including without limitation, the Additional Debentures, were then issued and
convertible and all Warrants, including without limitation the Additional
Warrants, were then issued and exercisable, in each case without regard to any
restrictions which
might limit any Holder's right to convert any of the Debentures or to exercise
any of the Warrants held by any Holder.
I. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties agrees
that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases, holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects. In furtherance of the foregoing, the
Company will provide to the Lender drafts of the applicable text of any filing
intended to be made with the SEC which refers to the Transaction Agreements or
the transactions contemplated thereby as soon as practicable (but at least three
(3) business days before such filing will be made) and will not include in such
filing any statement or statements or other material to which the other party
reasonably objects. Notwithstanding the foregoing, each of the parties hereby
consents to the inclusion of the text of the Transaction Agreements in filings
made with the SEC (but any descriptive text accompanying or part of such filing
shall be subject to the other provisions of this paragraph).
J. COMPANY PRINCIPAL AGREEMENTS. The Company hereby agrees that,
prior to the Initial Closing Date, the Company will cause each of the persons
named at the head of ANNEX VII attached hereto (each, a "Company Principal"),
each of whom is a director or a principal officer or employee of the Company,
and certain persons who are related to or controlled by such Company Principal,
to execute and deliver an agreement (each, a "Company Principal's Agreement")
regarding limitations on the sale or other disposition of such Company
Principal's shares of the Company's Common Stock (or instruments convertible
into or exercisable for such shares). Each Company Principal's Agreement shall
be substantially in the form set forth in ANNEX VII attached hereto.
5. TRANSFER AGENT INSTRUCTIONS.
A. The Company warrants that, with respect to the Securities, other
than the stop transfer instructions to give effect to Section 4(a) hereof, it
will give the Transfer Agent no instructions inconsistent with instructions to
issue Common Stock from time to time upon conversion of the Debentures in such
amounts as specified from time to time by the Company to the Transfer Agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Lender or its nominee and in such denominations to be specified by the Holder in
connection with each conversion of the Debentures. Except as so provided, the
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the other
Transaction Agreements. Nothing in this Section shall affect in any way the
Lender's obligations and agreement to comply with all applicable securities laws
upon resale of the Securities. If the Lender provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Lender of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Conversion Shares or of the Warrant Shares, promptly instruct
the Transfer Agent to issue one or more certificates for Common Stock without
legend in such name and in such denominations as specified by the Lender.
B. Subject to the provisions of this Agreement, the Company will
permit the Lender to exercise its right to convert the Debentures in the manner
contemplated by the Debentures and to exercise the Warrants in the manner
contemplated by the Warrants.
C. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date (as defined in the Debentures)
could result in economic loss to the Lender. As compensation to the Lender for
such loss, the Company agrees to pay late payments to the Lender for late
issuance of Shares upon conversion in accordance with the following schedule
(where "No. Business Days Late" refers to the number of business days which is
beyond two (2) business days after the Delivery Date):10
Late Payment For Each $10,000
of Debenture Principal or Interest
No. Business Days Late Amount Being Converted
--------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c) and the provisions of the immediately
following Section 5(d) of this Agreement) for
--------------------
10 Example: Notice of Conversion is delivered on Monday, December 1, 2003. The
Delivery Date would be Monday, December 8 (the fifth business day after such
delivery). If the certificate is delivered by Wednesday, December 10 (2 business
days after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on December 11, that is 1 "Business Day Late" in the
table below; if delivered on December 18, that is 6 "Business Days Late" in the
table.
such delay. Furthermore, in addition to any other remedies which may be
available to the Lender, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock by close of business on the
Delivery Date, the Lender will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company, whereupon the
Company and the Lender shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion; provided, however,
that an amount equal to any payments contemplated by this Section 5(c) which
have accrued through the date of such revocation notice shall remain due and
owing to the Converting Holder notwithstanding such revocation.
D. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued upon conversion of a Debenture and
after such Delivery Date, the Holder of the Debentures being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
addition to and not in lieu of the amounts due under Section 5(c) hereof (but in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
E. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause the Transfer Agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
F. The holder of any Debentures shall be entitled to exercise its
conversion privilege with respect to the Debentures notwithstanding the
commencement of any case under
11 U.S.C. ss.101 ET SEQ. (the "Bankruptcy Code"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. ss.362 in
respect of such holder's conversion privilege. The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of the conversion of the Debentures. The Company agrees,
without cost or expense to such holder, to take or to consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss.362.
G. The Company will authorize the Transfer Agent to give information
relating to the Company directly to the Lender or the Lender's representatives
upon the request of the Lender or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Lender in connection with a Notice of Conversion or
a Notice of Exercise, or (ii) the number of outstanding shares of Common Stock
of all shareholders as of a current or other specified date. At the request of
the Lender, the Company will provide the Lender with a copy of the authorization
so given to the Transfer Agent.
6. CLOSING DATES.
A. The Initial Closing Date shall occur on the date which is the
first Trading Day after each of the conditions contemplated by Sections 7 and 8
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run.
B. (i) Subject to the provisions of subparagraph (iv) of this
Section 6(b), the Additional Closing Date shall be the date specified in the
Additional Closing Date Notice (as defined below).
(ii) Subject to the other provisions of this Section 6(b), the
term "Additional Closing Date Notice" means a written notice given by the
Company to the Lender and to the Escrow Agent by fax transmission or hand
delivery no later than one (1) business day after the Company submits the
Effectiveness Request (as defined below; a copy of the Effectiveness Request
shall be attached to the Additional Closing Date Notice).
(iii) It also shall be a condition to the giving of an Additional
Closing Date Notice that the representations and warranties of the Company
contained in Section 3 hereof shall be true and correct in all material respects
and there shall have been no Material Adverse Effect from the Initial Closing
Date through and including the date the Company gives the Additional Closing
Date Notice to the Lender (and the Company's issuance of the Additional Closing
Date Notice shall constitute the Company's making each such representation and
warranty as of such date).
(iv) The Company also shall give written notice (an
"Effectiveness Notice") to the Lender and the Escrow Agent both (x) by fax
transmission or hand delivery and (y) by telephone communication of the actual
Effective Date declared by the SEC no later than
noon on the first business day after such Effective Date; provided, however,
that an Effectiveness Notice may be given only if the Effective Date is on or
before April 30, 2004. The fifth (5th) day after the actual Effective Date,
which may be later than the date requested in the Effectiveness Request, shall
be the Additional Closing Date.
(v) The Company shall execute the Certificates for the
Additional Debentures and the Additional Warrants and deliver them to the Escrow
Agent at least one Trading Day prior to the Additional Closing Date. The "Issue
Date" identified in such Additional Debentures and the Expiration Date
identified in such Additional Warrants shall be left blank and the Company will
authorize the Escrow Agent, upon their release to the Lender, to fill in (x) the
date of the Additional Closing Date as the Issue Date in such Additional
Debentures and (y) the Expiration Date (as contemplated by Annex IV hereto) in
the Additional Warrants.
(vi) The term "Effectiveness Request" means the Company's
written request to the SEC that the SEC declare the Registration Statement
effective on a specified date; provided, however, that the Effectiveness Request
shall be given only after the SEC has advised the Company informally, in writing
or otherwise that it will respond favorably to such request.
(vii) Except as provided in this Section 6(b), the closing for
the Additional Debentures and the Additional Warrants shall be conducted upon
the same terms and conditions as those applicable to the Initial Debentures and
Initial Warrants.
(viii) The Company hereby covenants and agrees that the Company
will issue each of the Additional Closing Date Notice and the Effectiveness
Notice to the Lender and the Escrow Agent on a timely basis.
(ix) If the Effective Date does not occur by the close of
business (Eastern time) on April 30, 2004, the obligations of the Lenders to
purchase the Additional Debentures and the Additional Warrants and the
obligations of the Company to issue the Additional Debentures and the Additional
Warrants shall automatically terminate (an "Additional Closing Date
Termination"). Such Additional Closing Date Termination shall not affect the
obligations of the Company or the Lender under any of the other Transaction
Agreements, including, without limitation, the Registration Rights Agreement,
except that the Transaction Agreements shall be deemed to refer only to the
Initial Debentures and the Initial Warrants and the transactions relating
thereto.
C. (i) Each closing of the purchase and issuance of Debentures
and Warrants shall occur on the relevant Closing Date at the offices of the
Escrow Agent and shall take place no later than 3:00 P.M., New York time, on
such day or such other time as is mutually agreed upon by the Company and the
Lender.
(ii) If the Registration Statement Filing Time (as defined
below) does not occur by the close of business on November 7, 2003, then at any
time after that date and
prior to the date on which the Registration Statement Filing Time occurs, the
Lender may, by written notice to the Escrow Agent (a "Cancellation Notice") with
a copy to the Company, request the return by the Escrow Agent to the Lender of
the Initial Purchase Price. Upon the Escrow Agent's receipt of such Cancellation
Notice, if the Registration Statement Filing Time has not occurred prior to 9 AM
(Eastern Time) of the Trading Day following such receipt by the Escrow Agent,
the Lender shall have no further obligations under this Agreement, including,
without limitation, the obligation to pay any part of the Aggregate Purchase
Price, and the Escrow Agent shall return the Lender's Escrow Funds to the Lender
and the Certificates issued to the Lender being held as part of the Escrow
Property to the Company.
(iii) If the Escrow Agent receives a Cancellation Notice from a
Lender, but the Registration Statement Filing Time occurs prior to 9 AM (Eastern
Time) of Trading Day following the Escrow Agent's receipt of such Cancellation
Notice, the Cancellation Notice shall be deemed null and void ab initio.
(iv) If, as a result of effective Cancellation Notices received
from one or more Lenders (whether such Lenders constitute all Lenders or less
than all Lenders), the Total Purchase Price of all remaining Lenders is less
than $2,000,000 (the "Minimum Purchase Price"), then, unless the Company
provides the Escrow Agent with an Additional Financing Notice (as defined below)
within two (2) Trading Days after its receipt of such Cancellation Notices, this
Agreement shall be deemed canceled with respect to all Lenders as if each of
them had timely given a Cancellation Notice. If the Company timely provides the
Escrow Agent with an Additional Financing Notice, the Cancellation Notices shall
apply only to the Lenders who have timely issued such Cancellation Notices;
provided, however, that if the Escrow Agent subsequently receives additional
Cancellation Notices, the provisions of this subparagraph (iv) shall apply.
(v) The term "Additional Financing Notice" means a written
notice certified to by the President, Chief Executive Officer or Chief Financial
Officer of the Company and confirmed by counsel to the Company to the effect
that the Company has binding commitments for funding for the Company for one or
more Permitted New Transactions, where, when the funding from such Permitted New
Transactions, when aggregated with the Total Purchase Price of Lenders who have
not issued Cancellation Notices, each of the following conditions apply: (x) the
aggregate funds (before fees and expenses and satisfaction of the Series 03-1
Debenture) to be received by the Company is at least $2,000,000, (y) the
aggregate funds (before fees and expenses and satisfaction of the Series 03-1
Debenture) to be received by the Company no later than two (2) Trading Days
after the Registration Statement Filing Time is at least $1,000,000, and (z) the
aggregate funds (before fees and expenses) to be received by the Company no
later than five (5) days after the Effective Date is at least $1,000,000 (the
conditions referred to in this sentence, the "Additional Financing Conditions").
Each Lender who has not issued a Cancellation Notice shall be a third party
beneficiary of the Additional Financing Notice. The Additional Financing Notice
will also include an undertaking by the Company to advise the Escrow Agent
immediately if any of the statements made in the Additional Financing Statement
would be reduced based on any events occurring subsequent to the Company's
issuance of the Additional Financing Notice. The Escrow Agent may rely on the
Additional Financing Notice until it is revised by the Company. If the Company
subsequently revises the then current Additional Financing Notice so that the
Additional Financing Conditions are no longer true, the provisions of
subparagraph (iv) shall apply.
(vi) If the Company issues an Additional Financing Notice, it
shall be a condition to the release of the Escrow Funds for the Initial Purchase
Price that the Company re-issue a new Additional Financing Notice as of the date
of the Registration Statement Filing Time.
D. (i) Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Funds to the Company
and to others and to release the other Escrow Property on the relevant Closing
Date upon satisfaction of the conditions set forth in Sections 7 and 8 hereof
and as provided in the Joint Escrow Instructions.
(ii) In furtherance of the foregoing and not in limitation
thereof, the parties acknowledge that, in connection with the purchase and sale
of the Initial Debentures and Initial Warrants, the Escrow Properties will be
deposited in escrow with the Escrow Agent as provided in Section 1 hereof (in
all events no later than the Trading Day immediately prior to the Initial
Closing Date) and be held in escrow until the Company delivers written notice to
the Escrow Agent that the Registration Statement, prepared in the manner
contemplated by the Registration Rights Agreement, has been filed and that such
filing is available on XXXXX (the time that the Registration Statement is marked
as filed by the SEC, as reflected on XXXXX is referred to as "Registration
Statement Filing Time"). The "Issue Date" identified in such Initial Debentures
and the Expiration Date identified in such Initial Warrants shall be left blank
and the Company will authorize the Escrow Agent, upon their release to the
Lender, to fill in (x) the date of the Initial Closing Date (or the later date
of the Escrow Agent's receipt of cleared Initial Purchase Price funds in escrow)
as the Issue Date in the relevant Lender's Initial Debentures and (y) the
Expiration Date (as contemplated by Annex IV hereto) in the Initial Warrants.
Furthermore, if, as contemplated by Section 6(c), the Company has issued an
Additional Financing Notice, it shall be a condition to the release of the
Escrow Funds for the Initial Purchase Price that the Company issue a new
Additional Financing Notice as of the date of the Registration Statement Filing
Time.
(iii) Upon the occurrence of an Additional Closing Date
Termination, the Escrow Agent shall return the Escrow Property, if any, relating
to the Additional Closing Date to the party which deposited such Escrow Property
in escrow.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell the
relevant Securities to the Lender pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
A. The execution and delivery of this Agreement by the Lender on or
before the Initial Closing Date;
B. Delivery by the Lender to the Escrow Agent of good funds as
payment in full of an amount equal to the relevant Purchase Price for the
relevant Securities in accordance with this Agreement;
C. The accuracy on such Closing Date of the representations and
warranties of the Lender contained in this Agreement, each as if made on such
date, and the performance by the Lender on or before such date of all covenants
and agreements of the Lender required to be performed on or before such date;
and
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to purchase the
relevant Securities on the relevant Closing Date is conditioned upon:
A. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before the Closing Date;
B. Delivery by the Company to the Escrow Agent of the relevant
Certificates in accordance with this Agreement;
C. Delivery by the Company to the Escrow Agent copies of (i) a
written instrument executed by The Consolidated Edison Company of New York
("CECONY") releasing any and all liens and other security interests previously
granted by the Company to or otherwise held by CECONY in the assets of the
Company, together with evidence of the filing of the UCC-3 termination
statements, as executed by or filed on the authorization of CECONY, releasing
such security interests, and (ii) a written instrument executed by Consolidated
Edison, Inc. ("ConEd") waiving any and all preemption rights, including rights
of first refusal and any other similar rights granted to ConEd by the Company;
D. Delivery by the Company to the Escrow Agent of written
confirmation that there are no changes to the Disclosure Letter, a copy of which
shall be attached to such confirmation;
E. Delivery by the Company to the Escrow Agent of the executed
Company Principal's Agreements from each Company Principal and the related
Principals (as defined in each Company Principal's Agreement) of such Company
Principal;
F. On such Closing Date, each of the Transaction Agreements
executed by the Company on or before such date shall be in full force and effect
and the Company shall not be in default thereunder;
G. The accuracy in all material respects on such Closing Date of
the representations and warranties of the Company contained in this Agreement,
each as if made on such date, and the performance by the Company on or before
such date of all covenants and agreements of the Company required to be
performed on or before such date;
H On such Closing Date, the Lender shall have received an opinion
of counsel for the Company, dated such Closing Date, in form, scope and
substance reasonably satisfactory to the Lender, substantially to the effect set
forth in ANNEX III attached hereto;
I. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained;
J. From and after the date hereof to and including the Closing
Date, each of the following conditions will remain in effect: (i) the trading of
the Common Stock shall not have been suspended by the SEC or on the Principal
Trading Market; (ii) trading in securities generally on the Principal Trading
Market shall not have been suspended or limited; (iii), no minimum prices shall
been established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any material adverse change in any financial market
that, in the reasonable judgment of the Lender, makes it impracticable or
inadvisable to purchase the Securities;
K. With respect to the Additional Closing Date,
(i) an Additional Closing Date Notice and an Effectiveness Notice
shall have been duly and timely given as provided in the relevant provisions of
Section 6(b);
(ii) the Registration Statement to cover all Registrable Securities
as contemplated by the Registration Rights Agreement shall have been declared
effective by the SEC five (5) days prior to such Additional Closing Date, but in
no event later than the close of business (Eastern time) on April 30, 2004; and
(iii) the representations and warranties of the Company contained in
Section 3 hereof shall be true and correct in all material respects as if made
on the Additional Closing Date (rather than the Initial Closing Date) and there
shall have been no Material Adverse Effect from the Initial Closing Date through
and including the Additional Closing Date (and an executive officer of the
Company shall issue an Officer's Certificate substantially in the form of ANNEX
VIII hereto with respect thereto; provided, however, that such Officer's
Certificate may update certain information, such as the number of shares of the
Company's stock outstanding, included in Section 3).
9. JURY TRIAL WAIVER. The Company and the Lender hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
10. GOVERNING LAW: MISCELLANEOUS.
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of Wilmington
or the state courts of the State of Delaware sitting in the City of Wilmington
in connection with any dispute arising under this Agreement or any of the other
Transaction Agreements and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on FORUM NON CONVENIENS, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
B. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
C. This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
D. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
E. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
F. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
G. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
H. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
I. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
J. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by domestic or international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: At the address set forth at the head of this Agreement.
Attn: President
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Aboudi & Xxxxxxxxxx
Attn: Xxxxx Xxxxxx, Esq.
Rechov Gavish 3, POB 2432
Kfar Xxxx Xxxxxxxxxx Xxxx 00000 Xxxxxx
Telephone No.: (000-000-0) 000-0000
Telecopier No.: (000-000-0) 000-0000
BUYER: At the address set forth on the signature page of this Agreement.
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
ESCROW AGENT: Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Lender's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the payment
of the Purchase Price, and shall inure to the benefit of the Lender and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Lender (if an entity, by one of its officers thereunto duly authorized) as of
the date set forth below.
AGGREGATE PURCHASE PRICE:
$
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SIGNATURES FOR LENDERS
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this ______________ day of
_______________________, 2003.
--------------------------------- ------------------------------------
Address Printed Name of Lender
---------------------------------
Telecopier No. By:
------------------ ---------------------------------
(Signature of Authorized Person)
--------------------------------- -------------------------------------
Jurisdiction of Incorporation Printed Name and Title
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
AMBIENT CORPORATION
By:
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Title:
--------------------------
Date: , 2003
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