EXHIBIT 4.6
ONE VOICE TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
January __, 2002
TABLE OF CONTENTS
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1. AGREEMENT TO SELL AND PURCHASE........................................... 1
2. FEES AND WARRANTS........................................................ 1
3. CLOSING, DELIVERY AND PAYMENT............................................ 2
3.1 Closing.............................................................. 2
3.2 Delivery............................................................. 2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 3
4.1 Organization, Good Standing and Qualification........................ 3
4.2 Subsidiaries......................................................... 3
4.3 Capitalization; Voting Rights........................................ 3
4.4 Authorization; Binding Obligations................................... 4
4.5 Liabilities.......................................................... 4
4.6 Agreements; Action................................................... 5
4.7 Obligations to Related Parties....................................... 5
4.8 Changes.............................................................. 6
4.9 Title to Properties and Assets; Liens, Etc. ......................... 7
4.10 Intellectual Property............................................... 7
4.11 Compliance with Other Instruments................................... 8
4.12 Litigation.......................................................... 8
4.13 Tax Returns and Payments............................................ 8
4.14 Employees........................................................... 8
4.15 Registration Rights and Voting Rights............................... 9
4.16 Compliance with Laws; Permits....................................... 9
4.17 Environmental and Safety Laws....................................... 9
4.18 Valid Offering...................................................... 9
4.19 Full Disclosure..................................................... 10
4.20 Insurance........................................................... 10
4.21 SEC Reports......................................................... 10
4.22 No Market Manipulation.............................................. 10
4.23 Listing............................................................. 10
4.24 No Integrated Offering.............................................. 10
4.25 Stop Transfer....................................................... 11
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4.26 Dilution............................................................ 11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
5.1 Requisite Power and Authority........................................ 11
5.2 Investment Representations........................................... 11
5.3 Purchasers Bear Economic Risk........................................ 11
5.4 Acquisition for Own Account.......................................... 12
5.5 Purchaser Can Protect Its Interest................................... 12
5.6 Accredited Investor.................................................. 12
5.7 Regulatory Compliance................................................ 12
5.8 Legends.............................................................. 12
5.9 Confidentiality...................................................... 12
5.10 Certain Acknowledgments............................................. 12
5.11 Distribution of Registered Shares................................... 12
6. COVENANTS OF THE COMPANY................................................. 13
6.1 Stop-Orders.......................................................... 13
6.2 Listing.............................................................. 14
6.3 Market Regulations................................................... 14
6.4 Reporting Requirements............................................... 14
6.5 Use of Funds......................................................... 14
6.6 Access to Facilities................................................. 14
6.7 Taxes................................................................ 15
6.8 Insurance............................................................ 15
6.9 Books and Records.................................................... 15
6.10 Intellectual Property............................................... 15
6.11 Confidentiality..................................................... 15
6.12 Required Approvals.................................................. 15
6.13 Reissuance of Securities............................................ 17
6.14 Opinion............................................................. 17
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION........ 17
7.1 Company Indemnification.............................................. 17
7.2 Purchasers' Indemnification.......................................... 17
7.3 Limitations.......................................................... 17
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7.4 Procedures........................................................... 18
8. CONVERSION OF CONVERTIBLE NOTES.......................................... 18
8.1 Mechanics of Conversion.............................................. 18
8.2 Mandatory Redemption................................................. 19
8.3 Maximum Conversion................................................... 19
8.4 Injunction - Posting of Bond......................................... 20
8.5 Buy-In............................................................... 20
8.6 Optional Redemption.................................................. 20
8.7 Nasdaq Approval...................................................... 20
9. REGISTRATION RIGHTS...................................................... 22
9.1 Registration Rights Granted.......................................... 22
9.2 Registration Procedures.............................................. 23
9.3 Provision of Documents............................................... 24
9.4 Non-Registration Events.............................................. 25
9.5 Expenses............................................................. 25
9.6 Indemnification and Contribution..................................... 26
10. OFFERING RESTRICTION.................................................... 28
11. INTENTIONALLY OMITTED................................................... 27
12. MISCELLANEOUS........................................................... 28
12.1 Governing Law...................................................... 28
12.2 Survival........................................................... 28
12.3 Successors and Assigns............................................. 29
12.4 Entire Agreement................................................... 29
12.5 Severability....................................................... 29
12.6 Amendment and Waiver............................................... 29
12.7 Delays or Omissions................................................ 29
12.8 Notices............................................................ 29
12.9 Attorneys' Fees.................................................... 30
12.10 Titles and Subtitles.............................................. 30
12.11 Counterparts...................................................... 30
12.12 Broker's Fees..................................................... 30
12.13 Construction...................................................... 30
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ONE VOICE TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of January __, 2002, by and among ONE VOICE TECHNOLOGIES, INC., a Nevada
corporation (the "Company"), and each of the Purchasers listed on Exhibit A
hereto (each a "Purchaser" and collectively the "Purchasers").
RECITALS
WHEREAS, the Company has authorized the sale of 4% Convertible Notes in an
aggregate principal amount of $1,400,000 (the "Notes"), convertible into shares
of the Company's common stock, $0.001 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issues warrants (the "Warrants") to the
Purchasers to purchase shares of the Company's Common Stock in connection with
Purchasers' purchase of the Notes;
WHEREAS, Purchasers desire to purchase the Notes and Warrants on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants to
Purchasers on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchasers, and each Purchaser hereby agrees to
purchase from the Company Notes in the amount set forth next to such Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amounts, in the aggregate among all Purchasers, shall be equal to
$1,400,000. The Notes purchased on the Closing Date shall be known as the
"Offering." The form of Notes is annexed hereto as Exhibit B. The Notes will
have a Maturity Date (as defined in the Notes) two years from the date of
issuance. Collectively, the Notes and Warrants (as defined in Section 2) and
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
are referred to as the "Securities."
2. FEES AND WARRANTS.
The Company will issue and deliver to the persons listed on Exhibit A under the
column heading "Warrant Holders", or to such other persons as the
(a) Purchasers shall otherwise designate (such named persons, as they may be so
otherwise
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designated, being referred to as the "Warrant Recipients"), Warrants
to purchase shares of Common Stock in the amounts designated on Exhibit A hereto
in connection with the Offering (the "Warrants") pursuant to Section 1 hereof.
The Warrants must be delivered on the Closing Date. The aggregate number of
shares of Common Stock purchasable upon exercise of the Warrants granted on the
Closing Date is set forth on Exhibit A hereto. A form of Warrant is annexed
hereto as Exhibit C. The per share "Purchase Price" of Common Stock as defined
in the Warrants shall be equal to 120% of closing price of the Common Stock as
reported by Bloomberg Financial for the Pink Sheets, the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market, American Stock Exchange,
or New York Stock Exchange (each of the foregoing the "Principal Market"), or
such other principal market or exchange where the Common Stock is listed or
traded, on the day preceding the Closing. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of Purchasers are hereby also made and granted to the
holders of the Warrants in respect of the Warrants and shares of the Company's
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares").
(b) The Company shall reimburse Purchasers for their reasonable legal
fees of $10,000 in the aggregate for services rendered to Purchasers in
preparation of this Agreement and the Related Agreements, and a non-accountable
expense allowance in the aggregate of $10,000. Amounts required to be paid
hereunder will be paid at the Closing.
(c) The Company will pay a fee in cash or in a note (the "Fund
Manager's Note"), at the option of the Purchaser, in the amount of seven and one
half percent (7.5%) of the aggregate gross purchase price to be paid to the
Company from the sale of Notes in the Offering the "Fund Manager's Fee") to the
persons listed on Exhibit A under the column heading "Fund Manager's Fee
Recipient." The Fund Manager's Fee must be paid on the Closing Date. The
aforementioned Fund Manager's Fee and legal fees will be payable at the Closing
out of funds held pursuant to a Funds Escrow Agreement to be entered into by the
Company, Purchasers and an Escrow Agent. Failure to timely deliver the Fund
Manager's Fee, or the Warrants shall be deemed an Event of Default as defined in
Article III of the Notes. The Fund Manager's Note shall have the same
registration rights as the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing of
the transactions contemplated hereby (the "Closing"), which closing is comprised
of Purchasers' purchase of Notes in the aggregate principal amount of
$1,400,000, shall take place on the date hereof, at the offices of Xxxxxx X.
Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, or at
such other time or place as the Company and Purchasers may mutually agree (such
date is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to each Purchaser an applicable Note
representing the aggregate principal amount borrowed by the Company at the
Closing from each such Purchaser and a warrant certificate registered in the
Purchasers' name representing the number of Warrant Shares as to which the
Warrant is exercisable pursuant to this Agreement, against payment of the
purchase
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price therefor by certified funds or wire transfer made payable to the order of
the Company, cancellation of indebtedness or any combination of the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Purchaser as of the
date of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. The Company has the corporate power and authority to own
and operate its properties and assets, to execute and deliver this Agreement,
the Warrants to be issued in connection with this Agreement, the Funds Escrow
Agreement, the Security Agreement and all other agreements referred to herein
(collectively, the "Related Agreements"), to issue and sell the Notes and the
shares of Common Stock issuable upon conversion of the Notes (the "Conversion
Shares"), to issue and sell the Warrants and the Warrant Shares, and to carry
out the provisions of this Agreement and the Related Agreements and to carry on
its business as presently conducted and as presently proposed to be conducted.
The Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity. If any entity is
listed on Schedule 4.2. and the Company owns a controlling interest in such
entity, each of the representations and warranties set forth in this Section 4
are being hereby restated with respect to such entity (modified as appropriate
to the nature of such entity.)
4.3 Capitalization; Voting Rights. Except as set forth on Schedule 4.3:
(a) The authorized capital stock of the Company, immediately
prior to the Closing, consists of (i) 100,000,000 shares of Common Stock, par
value $0.001 per share, 18,940,095 shares of which are issued and outstanding as
of December 24, 2001, and (ii) 10,000,000 shares of Preferred Stock, par value
$0.001 per share, no shares of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's Stock Option Plan; (ii) convertible securities held by the Purchasers;
and (iii) shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Notes or Warrants, or the issuance of any
of the Conversion Shares or Warrant Shares, nor the consummation of any
transaction contemplated hereby will result in a
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change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common Stock
and Preferred Stock (to the extent Preferred Stock has been issued) (i) have
been duly authorized and validly issued and are fully paid and nonassessable and
(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of Preferred Stock and the Common Stock are as stated in the Articles of
Incorporation (the "Charter"). The Conversion Shares and Warrant Shares have
been duly and validly reserved for issuance on a pro rata basis for each of the
Purchasers. When issued in compliance with the provisions of this Agreement and
the Company's Charter, the Notes, Warrants, Conversion Shares and Warrant Shares
(sometimes collectively referred to herein as the "Securities") will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities or
rights to purchase equity securities provides for acceleration or other changes
in the vesting provisions or other terms of such agreement or understanding as
the result of any merger, consolidated sale of stock or assets, change in
control or any other transaction(s) by the Company, including the transactions
contemplated hereunder.
4.4 Authorization; Binding Obligations. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at each Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, and (b) general principles of equity that restrict the
availability of equitable remedies. The sale of the Notes and the subsequent
conversion of the Notes into Conversion Shares are not and will not be subject
to any preemptive rights or rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the Warrants for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. The Notes and the Warrants, when executed and delivered in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
4.5 Liabilities. The Company has no material liabilities and, to the best
of its knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the
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ordinary course of business which have not been, either in any individual case
or in the aggregate, materially adverse.
4.6 Agreements; Action.
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or to its knowledge by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business), or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products), or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(d) Except as set forth on Schedule 4.6, the Company has not engaged
in the past two years in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company, or a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of or (iii) regarding
any other form of acquisition, liquidation, dissolution or winding up of the
Company.
4.7 Obligations to Related Parties. There are no obligations of the Company
to officers, directors, stockholders or employees of the Company other than (a)
for payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company and (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company). None of the officers, directors or stockholders of
the Company, or any members of their immediate families, are indebted to the
Company. None of the officers, directors or, to the best of the Company's
knowledge, key employees or stockholders
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of the Company or any members of their immediate families, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than 1% of such company) which may compete with the Company.
No officer, director or stockholder, or any member of their immediate families,
is, directly or indirectly, interested in any material contract with the Company
and no agreements, understandings or proposed transactions are contemplated
between the Company and any such person. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.8 Changes. Since September 30, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee or
group of employees of the Company;
(c) Any material change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or guaranteed
by the Company, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
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(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that the
Company has violated any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity, nor is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been rightfully assigned to the
Company.
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4.11 Compliance with Other Instruments. The Company is not in violation or
default of any term of its Charter or Bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order or writ. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements, and the issuance and sale of Securities pursuant hereto,
will not, with or without the passage of time or giving of notice, result in any
such material violation, or be in conflict with or constitute a default under
any such term or provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
4.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 Employees. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of
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employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on Schedule
4.15, the Company is presently not under any obligation, and has not granted any
rights, to register any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued. To the Company's knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchasers contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Securities to any person or persons so as
to bring the sale of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
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4.19 Full Disclosure. The Company has provided the Purchasers with all
information requested by the Purchasers in connection with its decision to
purchase the Notes and Warrants, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchasers in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading. To
the Company's knowledge, there are no facts which (individually or in the
aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not been
set forth in the Agreement, the exhibits and schedules hereto, the Related
Agreements or in other documents delivered to Purchasers in connection herewith.
4.20 Insurance. The Company has general commercial, product liability, fire
and casualty insurance policies with coverage customary for companies similarly
situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements, reports and
other documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchasers with copies of (i) its Annual Report on Form 10-K
for the fiscal year ended December 31, 2000, (ii) its Quarterly Reports on Form
10-Q for the fiscal quarters ended March 30, 2001, June 30, 2001 and September
30, 2001 and (iii) its Proxy Statement dated November 30, 2001 (collectively,
the "SEC Reports"). Each SEC Report was in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.22 No Market Manipulation. The Company has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 Listing. The Company's Common Stock is listed for trading on the
NASDAQ SmallCap Market. In August 2001, the Company received a notice that its
Common Stock may be delisted from the NASDAQ SmallCap Market and that the Common
Stock does not meet all requirements for the continuation of such listing. The
Company has not received any additional notification from the NASDAQ SmallCap
Market.
4.24 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under the 1933 Act, or any
applicable exchange-related
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stockholder approval provisions. Nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.25 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 Dilution. The number of shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company's executive officers have
studied and fully understand the nature of the Securities being sold hereby and
recognize that they have a potential dilutive effect. The Company specifically
acknowledges that its obligation to issue the shares of Common Stock upon
conversion of the Notes and 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.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby severally and not jointly represents and
warrants to the Company with respect to itself or himself as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.
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5.4 Acquisition for Own Account. Purchaser is acquiring the Notes for
Purchaser's own account for investment only, and not with a view towards their
distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Regulatory Compliance. Purchaser agrees that Purchaser will comply
with all relevant rules and regulations of the Securities Exchange Act of 1934,
as amended, including the provisions of Regulation M promulgated thereunder.
5.8 Legends.
(a) The Notes shall bear the following legend until the Notes and
Conversion Shares are covered by an effective registration statement filed with
the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ONE VOICE TECHNOLOGIES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Conversion Shares and the Warrant Shares shall bear a
legend which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL
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REASONABLY SATISFACTORY TO ONE VOICE TECHNOLOGIES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ONE VOICE
TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
5.9 Confidentiality. The Purchaser agrees that it will not include in
any public announcement, the name of the Company, unless expressly agreed to by
the Company or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
5.10 Certain Acknowledgements. The Purchaser hereby acknowledges that
it is aware that (i) the Company currently has no revenue, (ii) the Company has
suffered significant losses, and (iii) the Company's accountant has issue a
"going concern" opinion.
5.11 Distribution of Registered Shares. The Purchasers agree not to
sell on any given trading day in the aggregate more than 15% (7.5% for each
Purchaser) of the average daily volume of the shares of Common Stock traded on
any given day on the Principal Market on which the shares of Common Stock are
listed for trading.
6. Covenants of the Company. The Company covenants and agrees with the
Purchasers as follows:
6.1 Stop-Orders. The Company will advise the Purchasers, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
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6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Notes and upon the
exercise of the Warrants upon the Principal Market upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on a Principal
Market, and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company will
provide the Purchasers copies of all notices it receives notifying the Company
of the threatened and actual delisting of the Common Stock from any Principal
Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchasers
and promptly provide copies thereof to Purchasers.
6.4 Reporting Requirements. (a) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all material respects with its
reporting and filing obligations under the Exchange Act, (iii) comply with all
reporting requirements that is applicable to an issuer with a class of shares
registered pursuant to Section 12(g) of the Exchange Act, and (iv) comply with
all requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the earlier of (y) two
(2) years after the effective date of the Registration Statement on Form SB - 2
or such other Registration Statement described in Section 9.1(d) hereof, or (z)
the sale by the Purchasers of all the Securities issuable by the Company
pursuant to this Agreement. Until at least two (2) years after the Warrants have
been exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the NASDAQ SmallCap Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ.
6.5 Use of Funds. The Company undertakes to use the proceeds of the
Purchasers' funds for the purposes set forth on Schedule 6.5 attached hereto. A
deviation from the use of proceeds set forth on Schedule 6.5 of more than 10%
per item or more than 20% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder.
6.6 Access to Facilities. For so long as 20% of the principal amount
of the Notes is outstanding, the Company will permit any representatives
designated by the Purchasers (or any transferee of the Purchasers), so long as
such person holds any Securities upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company, to (a) visit and inspect any of the properties of the Company and
(b) examine the corporate and financial records of the Company (unless such
examination is
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not permitted by federal, state or local law or by contract) and make copies
thereof or extracts therefrom.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
6.9 Books and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
6.10 Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Purchaser,
unless expressly agreed to by such Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 Required Approvals. For so long as any Purchaser shall have at
least $250,000 of the principal amount of its Note outstanding, the Company,
without the prior written consent of each such Purchaser, shall not:
(a) enter into any transaction or series of transactions with any
stockholder, director, officer or employee which would require disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;
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(b) authorize, create or issue any securities (or any rights or
securities directly or indirectly convertible into or exercisable or
exchangeable for securities) having rights, preferences or privileges superior
to the Conversion Shares;
(c) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities (or
any securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(d) directly or indirectly redeem, purchase or otherwise acquire
any of the Corporation's capital stock or other equity securities (including,
without limitation, the Securities or any warrants, options and other rights to
acquire such capital stock or other equity securities) or directly or indirectly
redeem, purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans;
(e) merge or consolidate with any entity or enter into an
agreement to do so;
(f) sell, lease or otherwise dispose of more than 10% of the
assets of the Company (computed on the basis of book value, determined in
accordance with GAAP consistently applied, or fair market value, determined by
the Board of Directors in its reasonable good faith judgment) in any transaction
or series of related transactions (other than sales of inventory in the ordinary
course of business) or sell or permanently dispose of any of its intellectual
property;
(g) liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction (including,
without limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a partnership
for federal income tax purposes or a stock split or "reverse" stock split of the
Common Stock);
(h) acquire any interest in any company or business (whether by a
purchase of assets, purchase of stock, merger or otherwise), enter into any
joint venture or make any investments in any other entity;
(i) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby;
(j) create, incur, assume or suffer to exist indebtedness
exceeding an aggregate principal amount of $375,000 outstanding at any time;
(k) amend, alter or repeal the Company's Charter or Bylaws as to
increase the number of authorized shares of the Common Stock or any series of
preferred stock, or materially affect the rights or other powers of the
Conversion Shares, or otherwise take any action which is designed to, or could
have the effect of, adversely affecting the rights or other powers of the
Conversion Shares; or
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(l) materially alter or change the business of the Company.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the Act. The Company agrees to cooperate with the Purchasers in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the selling Purchaser
and broker, if any. If the Company fails to remove any legend as required by
this section (a "Legend Removal Failure"), then beginning on the tenth (10th)
day following the date that a Purchaser has requested the removal of the legend
and delivered all items reasonably required to be delivered by such Purchaser,
the Company continues to fail to remove such legend, the Company shall pay to
such Purchaser subject to a Legend Removal Failure an amount equal to one
percent (1%) of the Purchase Price of the Shares subject to a Legend Removal
Failure per day that such failure continues.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchasers an opinion acceptable to the Purchasers from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.
7. Covenants of the Company and Purchasers Regarding Indemnification.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchasers, each of the Purchasers' officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchasers which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and the Purchasers relating hereto.
7.2 Purchasers' Indemnification. The Purchasers agree to indemnify,
hold harmless, reimburse and defend the Company at all times against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon (a) any misrepresentation by the Purchasers or
breach of warranty by the Purchasers in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (b) any breach or default
in performance by the Purchasers of any covenant or undertaking to be performed
by the Purchasers hereunder, or any other agreement entered into by the Company
and the Purchasers relating hereto.
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7.3 Limitations. The Purchasers and the Company shall not make any
claim for indemnification until the aggregate amount of such indemnifiable
expenses exceeds $25,000, in which case such party may claim indemnification for
the full amount. In no event shall the Company have liability under this Section
7 to any party in excess of the aggregate purchase price of the outstanding
principal due under the Notes.
7.4 Procedures. The procedures and limitations set forth in
Section 9.6 shall apply to the indemnifications set forth in Sections 7.1 and
7.2 above.
8. CONVERSION OF CONVERTIBLE NOTES.
8.1 Mechanics of Conversion.
(a) Upon the conversion of the Notes or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates in the name of the Purchasers (or its nominee) or
such other persons as designated by the Purchasers and in such denominations to
be specified representing the number of Conversion Shares issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the Conversion Shares issued will be unlegended,
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Conversion Shares, provided the Purchasers
has notified the Company of the Purchasers' intention to sell the Conversion
Shares and the Conversion Shares are included in an effective registration
statement or are otherwise exempt from registration when sold.
(b) Purchasers will give notice of its decision to exercise its
right to convert the Notes or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchasers will not
be required to surrender the Notes until the Purchasers receives a certificate
or certificates, as the case may be, representing the Conversion Shares or until
the Note has been fully satisfied. Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions hereof
shall be deemed a "Conversion Date." The Company will or will cause the transfer
agent to transmit the Company's Common Stock certificates representing the
shares issuable upon conversion of the Notes (and a certificate representing the
balance of the Notes not so converted, if requested by Purchasers) to the
Purchasers via express courier for receipt by such Purchaser within four
business days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof, or the
Mandatory Redemption Payment described in Section 8.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as defined in Section 8.2)
could result in economic loss to the Purchasers. As compensation to the
Purchasers for such loss, the Company agrees to pay late payments to the
Purchasers for late issuance of the Conversion Shares in the form required
pursuant to Section 8 hereof upon conversion of the Notes or late payment of the
Mandatory Redemption Payment, in the amount of $100 per business day after the
Delivery Date or
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Mandatory Redemption Payment Date, as the case may be, for each
$10,000 Note principal being converted or redeemed. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Purchasers, in the event that the Company fails for any reason to effect
delivery of the Conversion Shares by the Delivery Date or make payment by the
Mandatory Redemption Payment Date, the Purchasers will be entitled to revoke all
or part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and the Purchasers shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 Mandatory Redemption. In the event the Company is unable to issue
Conversion Shares that have been registered when required to have been
registered pursuant to this Agreement on a Delivery Date or at any time when a
Note is convertible, for any reason, then at the Purchasers' election, the
Company must pay to the Purchasers five (5) business days after request by the
Purchasers or on the Delivery Date (if requested by the Purchasers) a sum of
money determined by multiplying the principal of the Note required to be
converted and not so converted (or otherwise not convertible, as applicable) by
130%, together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Purchasers
on the same date as the Conversion Shares are otherwise deliverable or within
five (5) business days after request, whichever is sooner ("Mandatory Redemption
Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding. The Mandatory Redemption Payment percentage in connection with an
Approval Default (as defined in Section 8.7 below) shall be 100%; provided that
all officers and directors vote their shares of the Common Stock for the
Approval.
8.3 Maximum Conversion. Each Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note or Notes in connection with
that number of shares of Common Stock which would be in excess of the sum of (i)
the number of shares of Common Stock beneficially owned by such Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Notes with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by such Purchaser of more than 4.99% of the outstanding shares of Common Stock
of the Company on such Conversion Date. The Purchasers shall have the authority
and obligation to determine whether the restriction contained in this Section
8.3 will limit any conversion hereunder and to the extent that a Purchaser
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible
-19-
shall be the responsibility and obligation of each such Purchaser. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. Subject to the foregoing, a Purchaser shall
not be limited to aggregate conversions of only 4.99%. A Purchaser may void the
conversion limitation described in this Section 8.3 upon 75 days prior notice to
the Company or upon an Event of Default under the Note. A Purchaser may allocate
which of the equity of the Company deemed beneficially owned by such Purchaser
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect
to convert a Note or part thereof, the Company may not refuse conversion for any
reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Purchaser
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the
Purchasers, if the Company fails to deliver to a Purchaser Conversion Shares by
the Delivery Date and if after the Delivery Date the Purchaser purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser
anticipated receiving upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Purchaser (in addition to any remedies available to or
elected by such Purchaser) the amount by which (A) a Purchaser's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (B) the aggregate principal and/or interest amount of the
Note, for which such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). For example, if a Purchaser purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of Note principal and/or interest,
the Company shall be required to pay such Purchaser $1,000, plus interest. A
Purchaser shall provide the Company written notice indicating the amounts
payable to such Purchaser in respect of the Buy-In.
8.6 Optional Redemption. The Company will have the option of redeeming
any outstanding Notes ("Optional Redemption") by paying to the Purchasers a sum
of money as follows:
from the Closing Date through 30 days after the Closing Date - 120%
from 31 days through 90 days after the Closing Date - 135%
from 91 days through 180 days after the Closing Date - 150%
after 180 days following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Purchasers
arising under this Agreement, Note
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or any other document delivered herewith ("Redemption Amount") outstanding on
the day notice of redemption ("Notice of Redemption) is given to a Purchaser
("Redemption Date"). A Notice of Redemption may not be given in connection with
any portion of Note for which notice of conversion has been given by the
Purchasers at any time before receipt of a Notice of Redemption. The Purchasers
may elect within five (5) business days after receipt of a Notice of Redemption
to give the Company Notice of Conversion in connection with some or all of the
Note principal and interest which was the subject of the Notice of Redemption. A
Notice of Redemption must be accompanied by a certificate signed by the chief
executive officer or chief financial officer of the Company stating that the
Company has on deposit and segregated ready funds equal to the Redemption
Amount. The Redemption Amount must be paid in good funds to the Purchasers no
later than the seventh (7th) business day after the Redemption Date ("Optional
Redemption Payment Date"). In the event the Company fails to pay the Redemption
Amount by the Optional Redemption Payment Date, then the Redemption Notice will
be null and void and the Company will thereafter have no further right to effect
an Optional Redemption, and at the Purchasers' election, the Redemption Amount
will be deemed a Mandatory Redemption Payment and the Optional Redemption
Payment Date will be deemed a Mandatory Redemption Payment Date. Such failure
will also be deemed an Event of Default under the Note. Any Notice of Redemption
must be given to all holders of Notes issued in connection with the Offering, in
proportion to their holdings of Note principal on a Redemption Date. A Notice of
Redemption may be given by the Company, provided (i) no Event of Default, as
described in the Note shall have occurred or be continuing; and (ii) the
Conversion Shares issuable upon conversion of the full outstanding Note
principal are included for unrestricted resale in a registration statement
effective as of the Redemption Date. Note proceeds may not be used to effect an
Optional Redemption.
8.7 NASDAQ Approval. The Company and the Purchasers agree that until
the Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from NASDAQ's corporate governance rules as they may
apply to the Securities, and an opinion of counsel reasonably acceptable to the
Purchasers that NASDAQ's corporate governance rules do not conflict with nor may
result in a delisting of the Company's common stock from the SmallCap Market
(the "Approval") upon the conversion of the Notes, each Purchaser may not
receive upon conversion of the Notes more than the number of common shares
greater than 9.95% of the shares of Company's common stock outstanding on the
Closing Date. Provided the closing price of the Common Stock on a Principal
Market is less than $.47 per share for three consecutive trading days (such
third day being the "Trigger Date"), the Company covenants to obtain the
Approval required pursuant to the NASDAQ's corporate governance rules to allow
conversion of all the Notes and interest thereon. The Company further covenants
to file the preliminary proxy statement relating to the Approval with the
Commission on or before thirty days after the Trigger Date ("Proxy Filing
Date"). The Company further covenants to obtain the Approval no later than
ninety days after the Closing Date ("Approval Date"). The Company's failure to
(i) file the proxy on or before the Proxy Filing Date; or (ii) the Company's
failure to obtain the Approval on or before the Approval Date (each being an
"Approval Default") shall be deemed an Event of Default under the Note, but only
to the extent the Notes and interest thereon that may not be converted due to
the Company's failure to obtain such Approval.
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9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the
following registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 90 days after the
Closing Date, but not later than two (2) years after the Closing Date (the
"Request Date"), the Company, upon a written request therefor from holders of
more than 50% of the aggregate of the Company's Securities then outstanding, on
an as converted basis (the Conversion Shares and Warrant Shares issued or
issuable with respect to all Notes, Fund Manager's Notes or Warrants issued or
to be issued hereunder, being, the "Registrable Securities"), shall prepare and
file with the SEC a registration statement under the Securities Act covering the
Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 9.1. As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 9.1 shall be limited to two registration
statements.
(b) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Purchasers
or subsequent holder pursuant to an effective registration statement, each such
time it will give at least 30 days' prior written notice to the record holder of
any Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 9.1(b) shall be, in
whole or in part, an underwritten public offering of Common Stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section 9.1(b)
without thereby incurring any liability to the Seller.
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(c) If, at the time any written request for registration is
received by the Company pursuant to Section 9.1(a), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for cash
of any of its securities for the Company's own account, such written request
shall be deemed to have been given pursuant to Section 9.1(b) rather than
Section 9.1(a), and the rights of the holders of Registrable Securities covered
by such written request shall be governed by Section 9.1(b) except that the
Company or underwriter, if any, may not withdraw such registration or limit the
amount of Registrable Securities included in such registration.
(d) The Company shall file with the SEC within 30 days of the
Closing Date (the "Filing Date"), and use its reasonable commercial efforts to
cause to be declared effective a Form SB-2 registration statement (or such other
form that it is eligible to use) within 90 days of the Closing Date in order to
register the Registrable Securities for resale and distribution under the
Securities Act. The registration statement described in this paragraph must be
declared effective by the SEC within 90 days of the Closing Date (as defined
herein) ("Effective Date"). The Company will register not less than a number of
shares of Common Stock in the aforedescribed registration statement that is
equal to the number of Warrant Shares and 300% of the Conversion Shares issuable
at the Conversion Prices set forth in the Warrants and Notes, respectively, that
would be in effect on the Closing Date or the date of filing of such
registration statement (employing the conversion price which would result in the
greater number of Shares), assuming the conversion of 100% of the Notes which
are then outstanding or issuable hereunder, and at least one share of common
stock for each common share issuable upon exercise of the Warrants which are
then outstanding or issuable hereunder (employing the Conversion Price that
would result in the greater number of shares). The Registrable Securities shall
be reserved and set aside exclusively for the benefit of the Purchasers on a pro
rata basis and the holders of the Warrants, as the case may be, and not issued,
employed or reserved for anyone other than the Purchasers and the holders of the
Warrants. Such registration statement will be promptly amended or additional
registration statements will be promptly filed by the Company as necessary to
register additional Company Shares to allow the public resale of all Common
Stock included in and issuable by virtue of the Registrable Securities. No
securities of the Company other than the Registrable Securities will be included
in the registration statement described in this Section 9.1(d) and the Company
will not register any other shares for resale on any other registration
statement for 120 days from the Closing Date.
9.2 Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and promptly provide to
the holders of Registrable Securities copies of all filings and SEC letters of
comment;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be
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necessary to keep such registration statement effective until the later of:
(i) six months after the latest exercise period of the Warrants; (ii) twelve
months after the Maturity Date of the last maturing Notes or (iii) four years
after the Closing Date, and comply with the provisions of the Securities Act
with respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Seller's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
9.3 Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 9.1(a) or a request for
registration has been made pursuant to Section 9.1(b), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 9.
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(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
9 covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
9.4 Non-Registration Events. The Company and the Purchasers agree that
the Seller will suffer damages if any registration statement required under
Section 9.1(a) above is not filed within 30 days after written request by the
holder and not declared effective by the SEC within 90 days after such request,
and maintained in the manner and within the time periods contemplated by Section
9 hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (i) the Registration Statement described in
Section 9.1(a) is not filed within 30 days of such written request, or is not
declared effective by the SEC on or prior to the date that is 90 days after such
request, or (ii) the registration statement on Form SB-2 or such other form as
described in Section 9.1(d) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, (i) the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to one percent (1%) for the
first month (ratably applied for any part thereof) and two percent (2%) per
month thereafter (ratably applied for any part thereof) during the pendency of
such Non-Registration Event of the principal of the Notes issued in connection
with the Offering, whether or not converted, then owned of record by such holder
or issuable as of or subsequent to the occurrence of such Non-Registration Event
and (ii) the Conversion Price as defined in Section 2.1 of the Notes shall be
reduced by 10% for each 30-day period following the Effective Date that the
Registration Statement is not declared effective by the SEC. Payments to be made
pursuant to this Section shall be due and payable immediately upon demand in
immediately available funds. In the event a Mandatory Redemption Payment is
demanded from the Company by the holder pursuant to Section 8.2 of this
Agreement, then the Liquidated Damages described in this Section 9.4 shall no
longer accrue on the portion of the purchase price underlying the Mandatory
Redemption Payment, from and after the date the holder receives the Mandatory
Redemption Payment. It shall be deemed a Non-Registration Event to the extent
that all the Common Stock included in the Registrable Securities and underlying
the Securities is not included in an effective registration statement as of and
after the Effective Date at the conversion prices in effect from and after the
Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees
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and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or "blue sky" laws, fees of the NASD,
transfer taxes, fees of transfer agents and registrars, fees of, and
disbursements incurred by, one counsel for the Seller, and costs of insurance
are called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any fees
and disbursements of any special counsel to the Seller beyond those included in
Registration Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with
the registration statement under Section 9. All Selling Expenses in connection
with each registration statement under Section 9 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
9.6 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless each Seller, each officer of each Seller, each director of each
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls any such Seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities was registered under the Act pursuant to
Section 9, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling person in writing specifically
for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 9, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement and each director of the Company, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer or director may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in
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the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer or director for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the net proceeds
received by the Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 9.6 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
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the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10. Offering Restriction. The Company shall not issue any securities
convertible, exchangeable or exercisable for shares of Common Stock for a period
of 60 days after the Registration Statement described in Section 9.1(d) has been
declared effective without the prior written consent of the Purchasers which
shall not be unreasonably withheld.
11. Intentionally omitted.
12. Miscellaneous.
12.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchasers
and the closing of the transactions contemplated hereby for a period of 24
months from the date hereof. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
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12.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules hereto,
the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchasers.
(b) The obligations of the Company and the rights of the holders of
the Securities under the Agreement may be waived only with the written consent
of such holders of Securities. The rights of the holder of a Note may be waived
only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchasers' part of any breach, default
or noncompliance under this Agreement, the Notes or the Related Agreements or
any waiver on such party's part of any provisions or conditions of the
Agreement, a Note or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Notes or the Related Agreements, by
law or otherwise afforded to any party, shall be cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchasers
at the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchasers to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx
-00-
00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000, facsimile number (000) 000-0000, or
at such other address as the Company or the Purchasers may designate by ten days
advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchasers. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
-30-
In Witness Whereof, the parties hereto have executed the Securities
Purchase Agreement as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
One Voice Technologies, Inc. Laurus Master Fund, LTD.
By:___________________________________
By:_____________________________________ Name:
Name: Address: LAURUS MASTER FUND, LTD.
Title: c/o Onshore Corporate Services
Address: 0000 Xxxxxxxxx Xxxxx, Xxxxx 000 Ltd.
Xxx Xxxxx, Xxxxxxxxxx 00000 X.X. Xxx 0000 G.T., Queensgate
House, South Church Street
Grand Cayman, Cayman Islands
Xxxxxxxxxxx Limited Partnership
By:_________________________________
Name:
Address: c/o Canaccord Capital, 000 Xxx Xxxxxx,
Xxxxx 0000 Xxxxxxx, Xxxxxxx X0X 0X0 Xxxxxx
[Securities Purchase Agreement Signature Page]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
---------------------------------------------------------------------------
Purchaser Closing Date Notes
---------------------------------------------------------------------------
Laurus Master Fund, Ltd. $700,000
Xxxxxxxxxxx Limited Partnership $700,000
TOTAL $1,400,000
---------------------------------------------------------------------------
SCHEDULE OF WARRANT HOLDERS
---------------------------------------------------------------------------
Name of Warrant Holder Number of Warrant Shares
---------------------------------------------------------------------------
Laurus Master Fund, Ltd. 250,000
---------------------------------------------------------------------------
Xxxxxxxxxxx Limited Partnership 250,000
---------------------------------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
---------------------------------------------------------------------------
Fund Manager Closing Date Finder's Fees
---------------------------------------------------------------------------
Laurus Capital Management, L.L.C. $52,500 (payable in cash)
---------------------------------------------------------------------------
Xxxxxxxxxxx Corporation $52,500 (payable in a Note)
---------------------------------------------------------------------------
TOTAL $105,000 (7.5% of Closing)
---------------------------------------------------------------------------
A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
FORM OF WARRANT
C-1
EXHIBIT D
FORM OF OPINION
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Nevada and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements, and the performance of all obligations of the Company
thereunder at each Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Conversion Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and upon delivery,
shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Notes or
the Related Agreements by the Company and the consummation of the transactions
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the Company;
or
(b) To the best of such counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement and Related Agreements constitute and the Notes, upon
their issuance will constitute, valid and legally binding obligations of the
Company, and are enforceable against the Company in accordance with their
respective terms.
5. The sale of the Notes and the subsequent conversion of the Notes into
Conversion Shares are not and will not be subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the Warrants for Warrant Shares are not and will not be subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. There is no action, suit, proceeding or investigation pending or, to
the best of such counsel's knowledge, currently threatened against the Company
that questions the validity of the Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company. To the best of such counsel's
knowledge, the
D-1
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality; nor is there any action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
7. The Purchasers will not be subject to the anti-takeover laws of the
State of Nevada.
D-2
