SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is entered into and dated as of
August 16, 2005 (this "AGREEMENT"), by and among Vaso Active Pharmaceuticals,
Inc., a Delaware corporation (the "COMPANY"), and each of the purchasers
identified on the signature pages hereto (each, a "PURCHASER" and collectively,
the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933 (the
"SECURITIES ACT"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, certain securities of the Company pursuant
to the terms set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser,
severally and not jointly, agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth in this Section
1.1:
"ADDITIONAL INVESTMENT RIGHTS" means, collectively, the Additional
Investment Rights issued and sold under this Agreement, in the form of EXHIBIT
A.
"ADDITIONAL INVESTMENT RIGHT WARRANTS" has the meaning set forth in
the Additional Investment Rights.
"ADDITIONAL NOTES" means the Senior Secured Convertible Notes due
on the 21st month anniversary of the issuance date thereof with an aggregate
principal face amount of $1,875,000 in the form of EXHIBIT B hereto issuable to
the Purchasers upon exercise of the Additional Investment Rights.
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144
under the Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Subsidiary thereof; (b) there is commenced
against the Company or any Subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any Subsidiary
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states
that it is unable to pay or is unable to pay, its debts generally as they become
due; (g) the Company or any Subsidiary calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(h) the Company or any Subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
"CHANGE OF CONTROL" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than one-half of the voting rights
or equity interests in the Company; (ii) a replacement of more than one-half of
the members of the Company's board of directors that is not approved by those
individuals who are members of the board of directors on the date hereof (or
other directors previously approved by such individuals); (iii) a merger or
consolidation of the Company or any Subsidiary or a sale of more than one-half
of the assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
Company's securities prior to the first such transaction continue to hold at
least two-thirds of the voting rights and equity interests in of the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any Subsidiary that constitutes or
results in a transfer of more than one-half of the voting rights or equity
interests in the Company; (v) consummation of a "Rule 13e-3 transaction" as
defined in Rule 13e-3 under the Exchange Act with respect to the Company, or
(vi) the execution by the Company or its controlling shareholders of an
agreement providing for or reasonably likely to result in any of the foregoing
events.
"CLASS A COMMON STOCK" means the Class A Common Stock of the
Company, par value $0.0001 per share
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing.
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"CLOSING PRICE" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on an Eligible Market or any other national securities
exchange, the closing bid price per share of the Common Stock for such date (or
the nearest preceding date) on the primary Eligible Market or exchange on which
the Common Stock is then listed or quoted; (b) if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the closing bid price per share of
the Common Stock for such date (or the nearest preceding date) so quoted; (c) if
prices for the Common Stock are then reported in the "Pink Sheets" published by
the National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent average
independent bid price per share of the Common Stock so reported; or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by a majority in interest of the
Purchasers.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
$0.0001 per share, and any securities into which such common stock may hereafter
be reclassified; provided that with respect to conversion or exercise rights
under the Notes and/or Warrants, all references to Common Stock shall be deemed
to be references to Class A Common Stock.
"COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Xxxxxxxx Xxxxxx LLP, counsel to the
Company.
"CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common Stock.
"EFFECTIVE DATE" means the date that the Registration Statement is
first declared effective by the Commission.
"ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market.
"ESCROW ACCOUNT" means that certain deposit account of the Company
held at Account No. 367534575 at Commerce Bank/PA, N.A., ABA No. 000000000.
"ESCROW AGREEMENT" means an escrow agreement by and among the
Company and Purchasers in the form attached hereto as EXHIBIT I.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" means the issuance of Common Stock (A) upon
exercise or conversion of any options or other securities described in Schedule
3.1(g) (provided that such exercise or conversion occurs in accordance with the
terms thereof, without amendment or modification) or (B) in connection with any
issuance of shares or grant of options to employees, officers, directors or
consultants of the Company pursuant to a stock option plan or other incentive
stock plan duly or otherwise pursuant to any employee benefit plan described in
Schedule 3.1(g) or hereafter adopted by the Company and approved by its
shareholders or in respect of the issuance of Common Stock upon exercise of any
such options.
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"FILING DATE" means the 60th day following the Closing Date with
respect to the initial Registration Statement required to be filed hereunder,
and, with respect to any additional Registration Statements that may be required
pursuant to SECTION 6.1(G), the 15th day following the date on which the Company
first knows, or reasonably should have known, that such additional Registration
Statement is required under such Section.
"INITIAL NOTES" means the Senior Secured Convertible Notes due May
1, 2007 with an aggregate principal face amount of $2,500,000 issued by the
Company to the Purchasers hereunder in the form of EXHIBIT B hereto.
"INITIAL WARRANTS" means the Common Stock purchase warrants in the
form of EXHIBIT C.
"LIEN" means any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.
"LOSSES" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of preparation
of legal action and reasonable attorneys' fees.
"NOTES" means the Initial Notes and the Additional Notes.
"OPTIONS" means any rights, warrants or options to subscribe,
directly or indirectly for or purchase Common Stock or Convertible Securities
(including all Additional Warrants that can be issued under the Transaction
Documents).
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated as of
the Closing Date, by and among the Company, Iroquois Master Fund, Ltd. and each
of the Purchasers, as the same be amended, modified or supplemented from time to
time, substantially in the form of EXHIBIT D.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus including post effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
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"PURCHASER COUNSEL" means Proskauer Rose LLP, counsel to Iroquois
Master Fund, Ltd.
"REGISTRABLE SECURITIES" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction Documents,
together with any securities issued or issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to the
foregoing.
"REGISTRATION STATEMENT" means the initial registration statement
required to be filed under Article VI and any additional registration statements
contemplated by Section 6.1(g), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"REQUIRED EFFECTIVENESS DATE" means (i) with respect to the initial
Registration Statement required to be filed hereunder, the 90th day following
the Closing Date or in the event the Registration Statement shall be reviewed by
the Commission, the 120th day following the Closing Date, and (ii) with respect
to any additional Registration Statements that may be required pursuant to
SECTION 6.1(G), the 45th day following the date on which the Company first
knows, or reasonably should have known, that such additional Registration
Statement is required under such Section.
"RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule 415 and
Rule 424, respectively, promulgated by the Commission pursuant to the Securities
Act, as such Rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.
"SECURITIES" means the Notes, the Warrants and the Underlying
Shares issued or issuable (as applicable) to the applicable Purchaser pursuant
to the Transaction Documents.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Security Agreement dated as of the
Closing Date, among the Company and the Purchasers substantially in the form of
EXHIBIT E.
"SUBSIDIARY" has the meaning set forth in Section 3.1(a).
"TRADING DAY" means (a) any day on which the Common Stock is listed
or quoted and traded on its primary Trading Market, or (b) if the Common Stock
is not then listed or quoted and traded on any Trading Market, then any Business
Day.
"TRADING MARKET" means Nasdaq SmallCap Market or any other Eligible
Market or any national securities exchange, market or trading or quotation
facility, if any, on which the Common Stock is then listed or quoted.
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"TRANSACTION DOCUMENTS" means this Agreement, the Additional
Investment Rights, the Notes, the Warrants, the Security Agreement, the Pledge
Agreement, the Transfer Agent Instructions and any other documents or agreements
executed or delivered by or on behalf of the Company in connection with the
transactions contemplated hereby.
"TRANSFER AGENT INSTRUCTIONS" means the Company's transfer agent
instructions in the form of EXHIBIT F.
"UNDERLYING SHARES" means the shares of Common Stock issuable (i)
upon conversion of the Initial Notes, (ii) upon exercise of the Initial
Warrants, (iii) upon conversion of the Additional Notes issued upon exercise of
the Additional Investment Rights, (iv) upon exercise of the Additional
Investment Right Warrants issued upon exercise of the Additional Investment
Rights, and (v) in satisfaction of any other obligation of the Company to issue
shares of Common Stock pursuant to the Transaction Documents, and in each case,
any securities issued or issuable in exchange for or in respect of such
securities.
"VWAP" means on any particular Trading Day or for any particular
period the volume weighted average trading price per share of Common Stock on
such date or for such period on an Eligible Market as reported by Bloomberg
L.P., or any successor performing similar functions; PROVIDED, HOWEVER, that
during any period the VWAP is being determined, the VWAP shall be subject to
adjustment from time to time for stock splits, stock dividends, combinations and
similar events as applicable.
"WARRANTS" means the Initial Warrants and the Additional Investment
Right Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
the Notes and the Warrants for the aggregate purchase price set forth below such
Purchaser's name on the signature pages hereto. The Closing shall take place at
the offices of Purchaser Counsel or at such other location or time as the
parties may agree.
2.2 CLOSING DELIVERIES.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser or its agent the following:
(i) a Note, registered in the name of such Purchaser, in the
principal amount indicated below such Purchaser's name on the signature page of
this Agreement under the heading "Note Principal Amount";
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(ii) an Additional Investment Right, registered in the name of
such Purchaser, pursuant to which such Purchaser shall have the right to acquire
such principal amount of Additional Notes and Additional Investment Right
Warrants indicated below such Purchaser's name on the signature page of this
Agreement under the headings "Additional Investment Rights - Additional Notes"
and "Additional Investment Rights - Warrant Shares," respectively, on the terms
set forth therein;
(iii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire such number of
Underlying Shares indicated below such Purchaser's name on the signature page of
this Agreement under the heading "Warrant Shares."
(iv) the legal opinion of Company Counsel, in the form of
EXHIBIT G, executed by such counsel and delivered to the Purchasers;
(v) the Transfer Agent Instructions duly executed by the
Company and acknowledged by the Company's transfer agent;
(vi) the Pledge Agreement duly executed by the Company;
(vii) the Security Agreement duly executed by the Company;
(viii) the Escrow Agreement duly executed by the Company;
(ix) each of the physical stock or limited liability company
certificates of the Subsidiaries of the Company, along with undated stock powers
for each such certificates, executed in blank (or, if any such shares of capital
stock are uncertificated, confirmation and evidence reasonably satisfactory to
the Agent (as such term is defined in the Security Agreement) that the security
interest in such uncertificated securities has been transferred to and perfected
by the Purchaser Representative, for the benefit of Lenders, in accordance with
Sections 8-313, 8-321 and 9-115 of the UCC or any other similar or local or
foreign law that may be applicable); and
(x) any other document reasonably requested by the Purchasers
or Purchaser Counsel.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following
(i) the purchase price indicated below such Purchaser's name
on the signature page of this Agreement under the heading "Aggregate Purchase
Price", in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing by the Company for such purpose;
(ii) the Pledge Agreement duly executed by such Purchaser;
(iii) the Security Agreement duly executed by such Purchaser;
and
(iv) the Escrow Agreement duly executed by the Company.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) SUBSIDIARIES. The Company does not directly or indirectly
control or own any interest in any other corporation, partnership, joint venture
or other business association or entity (a "SUBSIDIARY").
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (i)
adversely affect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE
EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary action on the part of the Company and no further consent or action
is required by the Company, its Board of Directors or its stockholders. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws relating to or affecting the enforcement of creditors' rights generally and
to general equitable principles and except as the enforceability of rights to
indemnity and contribution under this Agreement may be limited under applicable
securities laws or the public policy underlying such laws.
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(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except as do not, individually or in the aggregate, have
or are reasonably be expected to result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than the filing with the Commission of the Registration Statement, the
application(s) to each Trading Market, if applicable, for the listing of the
Underlying Shares for trading thereon in the time and manner required thereby,
applicable Blue Sky filings, and the waivers of registration rights identified
in Schedule 3.1(e) (collectively, the "Required Approvals").
(f) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized. The Initial Notes, the Initial Warrants and the Additional
Investment Rights have been, and the Additional Notes and Additional Investment
Right Warrants issuable upon exercise of the Additional Investment Rights, when
issued in accordance with the terms of the Additional Investment Rights, and the
Underlying Shares, when so issued in accordance with the terms of the Notes or
the Warrants, as the case may be, will be, validly issued. The Initial Notes,
the Initial Warrants and Additional Investment Rights are, and the Additional
Notes, Additional Investment Right Warrants, Underlying Shares, when so issued
in accordance with the terms of the Notes, Warrants or Additional Investment
Rights, as the case may be, will be, fully paid and nonassessable and free of
preemptive or similar rights. The Initial Notes, the Initial Warrants and the
Additional Investment Rights have been, the Additional Notes and the Additional
Investment Right Warrants shall be, and the Underlying Shares, when so issued in
accordance with the terms of the Notes or the Warrants, as the case may be, will
be, issued in compliance with applicable securities laws, rules and regulations.
The Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock to be issued to the applicable Purchasers upon
conversion or exercise of the Notes, Warrants, Additional Investment Rights or
issuable pursuant to the other Transaction Documents.
(g) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set forth in
SCHEDULE 3.1(G). No securities of the Company are entitled to preemptive or
similar rights, and no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and except as disclosed in SCHEDULE 3.1(g), there are
no outstanding options, warrants, script rights to subscribe to, calls or
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commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Except as set forth in SCHEDULE 3.1(g), the issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials being collectively referred to herein as the "SEC
REPORTS" and, together with the Schedules to this Agreement and press releases
of the Company issued during the 12 months prior to the Closing Date, the
"DISCLOSURE MATERIALS") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. The Company has made available to and/or notified the
Purchasers or their agents of all SEC Reports filed within the 10 days preceding
the date hereof. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except as alleged by the Commission with respect
to the initial annual report on Form 10-KSB for the fiscal year 2003 (which was
amended and filed on July 21, 2004) in a Complaint filed on August 17, 2004
(which allegations the Company, in consenting to injunction, did not admit) and
which Complaint has been made available to the Purchasers or their agents and of
which the Purchasers have been notified. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
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financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information, with respect to reports filed
with the Commission.
(j) LITIGATION. Except as set forth on Schedule 3.1(j), there is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "ACTION") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or result in a
Material Adverse Effect, except as set forth on Schedule 3.1(j). Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as does not, individually or in the aggregate, or reasonably be
expected to result in a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
11
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in material compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights currently used by the Company or
any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth
in SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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(s) SOLVENCY. Based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature; and (ii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its debt when such amounts are required
to be paid. The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of cash to
be payable on or in respect of its debt).
(t) CERTAIN FEES. Except as described in SCHEDULE 3.1(T), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(u) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2(b)-(e), no registration
under the Securities Act is required for the offer and sale of the Securities by
the Company to the Purchasers as contemplated hereby. No shareholder approval is
required for the Company to fulfill its obligations under the Transaction
Documents.
(v) REGISTRATION RIGHTS. Except as set forth on Schedule 3.2(v),
the Company has not granted or agreed to grant to any Person any rights
(including "piggy back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority that
have not been satisfied or waived.
(w) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti
takeover provision under the Company's Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could
become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
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(x) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
non-public information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that (i) no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 or (ii) any
statement, commitment or promise to the Company or, to its knowledge, any of its
representatives which is or was an inducement to the Company to enter into this
Agreement or otherwise.
(y) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company or any
other Purchaser (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any Purchaser or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Purchaser's purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives and the Purchaser's representations and warranties contained in
Section 3.2. The Company further acknowledges that no Purchaser has made any
promises or commitments other than as set forth in this Agreement, including any
promises or commitments for any additional investment by any such Purchaser in
the Company.
(z) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
of, an investment company within the meaning of the Investment Company Act of
1940, as amended.
(aa) RANKING. Except as set forth on Schedule 3.1(aa), as of the
date of this Agreement, no indebtedness of the Company is senior to or pari
passu with the Notes in right of payment, whether with respect to principal,
interest or upon liquidation or dissolution, or otherwise.
(bb) XXXXXXXX-XXXXX ACT. The Company is in compliance with
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 and applicable rules
and regulations promulgated by the Commission thereunder in effect as of the
date of this Agreement, except where such noncompliance could not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
14
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, limited liability
company or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The Purchaser was not organized
for the purpose of purchasing or acquiring any of the Securities. The execution,
delivery and performance by such Purchaser of this Agreement have been duly
authorized by all necessary corporate or limited liability company action on the
part of such Purchaser. This Agreement has been duly executed by such Purchaser
and, when delivered by such Purchaser in accordance with terms hereof, will
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Such Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act.
(c) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
(d) ACCESS TO INFORMATION. The Purchaser has been given sufficient
access and opportunity to examine the books and records of the Company,
including its written contracts and agreements, and has been provided with such
other information and documents as the Purchaser has requested, including
information regarding the Company's performance and financial results for the
quarter and six-month periods ended June 30, 2005, to enable the Purchaser to
complete evaluation referenced to in Section 3.2(b), above.
(e) INVESTMENT INTENT. Such Purchaser (i) is acquiring the
Securities solely for the Purchaser's own account for investment purposes only
and not with a view toward the resale or distribution of any of the Securities,
either in whole or in part; and (ii) agrees not to sell or otherwise transfer
any of the Securities unless and until they are subsequently registered under
the Securities Act and registered and qualified under any applicable state
securities laws or unless an exemption from any such registration or
qualification is available.
(f) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
15
The Company acknowledges and agrees that each Purchaser does not make
and has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act, and in
compliance with any applicable state securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its transfer agent, without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act. As
a condition of transfer, any such transferee shall agree in writing to be bound
by the terms of this Agreement and shall have the rights of a Purchaser under
this Agreement.
(b) The Purchasers agree to the imprinting, except as otherwise
permitted by Section 4.1(c), the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY
LAWS AND THE COMPANY MAY, IN ACCORDANCE WITH SECTION 4.1(a) OF THAT
CERTAIN SECURITIES PURCHASE AGREEMENT DATED AUGUST 16, 2005, AMONG
THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES
THEREOF, REQUIRE AN OPINION OF COUNSEL REGARDING SUCH MATTERS.
NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
16
(c) Certificates evidencing Securities shall not be required to
contain the legend set forth in Section 4.1(b) or any other legend (i) while a
Registration Statement covering the resale of such Securities is effective under
the Securities Act, or (ii) following any sale of such Securities pursuant to
Rule 144, or (iii) if such Securities are eligible for sale under Rule 144(k),
or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the Staff of the Commission). The Company shall cause its counsel to issue the
legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the Effective Date. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will promptly but in no event later than five (5) Trading Days following
the delivery by a Purchaser to the Company of a legended certificate
representing such Securities, deliver or cause to be delivered to such Purchaser
a certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in Section 4.1(b).
(d) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of selling stockholders thereunder.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities (including the Underlying Shares) will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligations under the Transaction Documents, including without
limitation its obligation to issue the Securities (including the Underlying
Shares) pursuant to the Transaction Documents, are unconditional and absolute
and not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim that the Company may
have against any Purchaser.
17
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with paragraph (c) of Rule 144 such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.
4.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
4.5 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents, except that if the Company on the Closing Date does not
have a sufficient number of authorized shares of Class A Common Stock to create
such reserve, the Company shall, not later than sixty (60) days following the
Closing Date, use its best efforts to increase the number of authorized shares
of Class A Common Stock to an amount greater than the sum of the aggregate
number of outstanding shares of Class A Common Stock and the aggregate number of
shares of Class A Common Stock issuable upon the conversion or exercise of all
of the outstanding Convertible Securities and Options of the Company.
(b) The Common Stock is not listed or quoted in any Trading Market.
If the Common Stock should become listed in a Trading Market, the Company shall
(i) take all steps necessary to cause the shares of Common Stock issued or
issuable under the Transaction Documents to be approved for listing on each
Trading Market as soon as possible thereafter, (ii) provide to the Purchasers
evidence of such listing, and (iii) maintain the listing of such shares on each
such Trading Market or another Eligible Market.
(c) In the case of a breach by the Company of Section 4.5(a), in
addition to the other remedies available to the Purchasers, the Purchasers shall
have the right to require the Company to either: (i) use its best efforts to
obtain the required shareholder approval necessary to permit the issuance of
such shares of Common Stock as soon as is possible, but in any event not later
than the 60th day after such notice, or (ii) within five Trading Days after
delivery of a written notice, pay cash to such Purchaser, as liquidated damages
and not as a penalty, in an amount equal to the number of shares of Common Stock
not issuable by the Company times 115% of the average Closing Price over the
five Trading Days immediately prior to the date of such notice or, if greater,
the five Trading Days immediately prior to the date of payment (the "CASH
AMOUNT"). If the exercising or converting Purchaser elects the first option
under the preceding sentence and the Company fails to obtain the required
shareholder approval on or prior to the 60th day after such notice, then within
three Trading Days after such 60th day, the Company shall pay the Cash Amount to
such Purchaser, as liquidated damages and not as penalty.
18
4.6 SUBSEQUENT PLACEMENTS.
(a) From the date hereof until the Effective Date, the Company will
not, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or the Subsidiaries' equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT")
except as set forth in Section 4.6(e) hereof.
(b) From the Effective Date until 30 Trading Days after the
Effective Date (the "BLOCKOUT PERIOD"), the Company will not, directly or
indirectly, effect any Subsequent Placement except as set forth in Section
4.6(e) hereof.
(c) The Blockout Period set forth in Section 4.6(b) above shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, (ii) the Registration
Statement is not effective, or (iii) the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of Registrable
Securities thereunder.
(d) From the end of the Blockout Period until the Maturity Date,
the Company will not, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4.6(d).
(i) The Company shall deliver to each Purchaser a written
notice (the "OFFER") of any proposed or intended issuance or sale or
exchange of the securities being offered (the "OFFERED SECURITIES") in
a Subsequent Placement, which Offer shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of
the Offered Securities to be issued, sold or exchanged, (y) identify
the Persons or entities to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue and
sell to or exchange with each Purchaser (A) a pro rata portion of the
Offered Securities based on such Purchaser's pro rata portion of the
aggregate principal amount of the Notes purchased hereunder (the "BASIC
AMOUNT"), and (B) with respect to each Purchaser that elects to
purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Purchasers as
such Purchaser shall indicate it will purchase or acquire should the
other Purchasers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
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(ii) To accept an Offer, in whole or in part, a Purchaser must
deliver a written notice to the Company prior to the end of the 10
Trading Day period of the Offer, setting forth the portion of the
Purchaser's Basic Amount that such Purchaser elects to purchase and, if
such Purchaser shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Purchaser elects to
purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the Basic
Amounts subscribed for by all Purchasers are less than the total of all
of the Basic Amounts, then each Purchaser who has set forth an
Undersubcription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; PROVIDED, HOWEVER, that
if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
Purchaser who has subscribed for any Undersubscription Amount shall be
entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic
Amounts of all Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Board of Directors to the extent
its deems reasonably necessary.
(iii) The Company shall have five (5) Trading Days from the
expiration of the period set forth in Section 4.6(d)(ii) above to
issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Purchasers
(the "REFUSED SECURITIES"), but only to the offerees described in the
Offer and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer.
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4.6(d)(iii) above), then each Purchaser
may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified in its Notice of
Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 4.6(d)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities
the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Purchasers pursuant to
Section 4.6(c)(ii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the
number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Purchasers in accordance
with Section 4.6(d)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Purchasers shall
acquire from the Company, and the Company shall issue to the
Purchasers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4.6(d)(iv) above
if the Purchasers have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Purchasers and their respective counsel.
20
(vi) Any Offered Securities not acquired by the Purchasers or
other persons in accordance with Section 4.6(d)(iii) above may not be
issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.
(e) The restrictions contained in paragraphs (a), (b) and (d)
of this Section 4.6 shall not apply to Excluded Stock.
4.7 CONVERSION AND EXERCISE PROCEDURES. The form of Exercise Notice
included in the Warrants and the form of Holder Conversion Notice included in
the Notes set forth the totality of the procedures required by the Purchasers in
order to exercise the Warrants or convert the Notes. No additional legal opinion
or other information or instructions shall be necessary to enable the Purchasers
to convert their Notes. The Company shall honor exercises of the Warrants and
conversions of the Notes and shall deliver Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Transaction Documents.
4.8 SECURITIES LAWS DISCLOSURE; PUBLICITY. On August 16, 2005, the
Company shall issue a press release acceptable to the Purchasers disclosing all
material terms of the transactions contemplated hereby. Within two (2) Business
Days of the date of this Agreement, the Company shall file a Current Report on
Form 8-K with the Commission (the "8-K FILING") describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Current Report on Form 8-K this Agreement and the form of Notes, in the
form required by the Exchange Act. Thereafter, the Company shall timely file any
filings and notices required by the Commission or applicable law with respect to
the transactions contemplated hereby and provide copies thereof to the
Purchasers promptly after filing. In connection with filings and disclosure made
subsequent to the 8-K Filing, the Company shall, as promptly as practicable
prior to the filing or dissemination of any disclosure required by this
paragraph, provide a copy thereof to the Purchasers for their review. The
Company and the Purchasers shall consult with each other in issuing any press
releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or Trading Market
with respect to the transactions contemplated hereby, and neither party shall
issue any such press release or otherwise make any such public statement, filing
or other communication without the prior consent of the other, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement, filing or
other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing without the
express written consent of such Purchaser. In the event of a breach of the
foregoing covenant by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Purchaser shall
have the right to require the Company to make a public disclosure, in the form
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of a press release, public advertisement or otherwise, of such material
nonpublic information. No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders or agents for any such disclosure. Subject to the foregoing,
neither the Company nor any Purchaser shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable law
and regulations (provided that in the case of clause (i) Iroquois Master Fund,
Ltd. shall be consulted by the Company in connection with any such press release
or other public disclosure prior to its release to the extent practicable). Each
press release disseminated during the 12 months prior to the Closing Date did
not at the time of release contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.9 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than (i) payment of
trade payables and accrued expenses in the ordinary course of the Company's
business and prior practices, and (ii) pursuant to the Escrow Agreement or any
other Transaction Document), to redeem any Company equity or equity-equivalent
securities or to settle any outstanding litigation.
4.10 INDEBTEDNESS.
(a) At any time after the date of this Agreement, neither the
Company nor any Subsidiary of the Company shall incur any indebtedness,
liability or obligation that is senior to or pari passu with the Notes in right
of payment, whether with respect to principal, interest or upon liquidation or
dissolution, or otherwise; PROVIDED, HOWEVER, that notwithstanding the
foregoing, the Company may, in the ordinary course of business, incur
indebtedness secured by purchase money security interests (which will be senior
only as to the underlying assets covered thereby) and indebtedness under capital
lease obligations (which will be senior only as to the underlying assets covered
thereby).
(b) The Company hereby covenants that, except for the indebtedness
set forth on Schedule 3.1(aa), it shall not permit or cause any of its
Subsidiaries to create, incur, assume, guarantee or suffer to exist any
indebtedness, liability or obligation, except, that such Subsidiaries may, in
the ordinary course of business, (i) maintain trade payables and accrued
expenses and (ii) incur indebtedness secured by purchase money security
interests, and indebtedness under capital lease obligations.
(c) The provisions of this Section 4.10 shall terminate and be of
no further force or effect upon the conversion or indefeasible repayment in full
of the Notes and all accrued interest thereon and any and all expenses or
liabilities relating thereto.
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4.11 REPAYMENT OF NOTES. Each of the parties hereto agrees that all
repayments of the Notes (including any accrued interest thereon) by the Company
(other than by conversion of the Notes) will be paid pro rata to the holders
thereof based upon the principal amount then outstanding to each of such
holders.
4.12 NO IMPAIRMENT. At all times after the date hereof, the Company
will not take or permit any action, or cause or permit any subsidiary to take or
permit any action that impairs or adversely affects the rights of the Purchasers
under the Agreement or the Notes.
4.13 FUNDAMENTAL CHANGES. In addition to any other rights provided by
law or set forth herein, from and after the date of this Agreement and for so
long as more than twenty percent (20%) of the Notes remain outstanding, the
Company shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of a majority of the outstanding
principal face amount of the Notes:
(a) purchase, redeem (other than pursuant to equity incentive
agreements with non-officer employees giving the Company the right to repurchase
shares upon the termination of services) or set aside any sums for the purchase
or redemption of, or declare or pay any dividend (other than a dividend payable
in stock of the Company) or make any other distribution with respect to, any
shares of capital stock or any other securities that are convertible into or
exercisable for such stock;
(b) change the nature of the Company's business to any business
which is fundamentally distinct and separate from the business currently
conducted by the Company; or
(c) cause or permit any subsidiary of the Company directly or
indirectly to take any actions described in clauses (a) through (b) above, other
than paying cash dividends, making other cash distributions or issuing
securities, solely to the extent such cash dividends, cash distributions or
issuances of securities are made to the Company.
4.14 INDEMNIFICATION.
(a) If any Purchaser or any of its Affiliates or any officer,
director, partner, controlling person, employee or agent of a Purchaser or any
of its Affiliates (a "RELATED PERSON") becomes involved in any capacity in any
Proceeding brought by or against any Person in connection with or as a result of
the transactions contemplated by the Transaction Documents, the Company will
indemnify and hold harmless such Purchaser or Related Person for its reasonable
legal and other expenses (including the costs of any investigation, preparation
and travel) and for any Losses incurred in connection therewith, as such
expenses or Losses are incurred, excluding only Losses that result directly from
such Purchaser's or Related Person's gross negligence or willful misconduct. In
addition, the Company shall indemnify and hold harmless each Purchaser and
Related Person from and against any and all Losses, as incurred, arising out of
or relating to any breach by the Company of any of the representations,
warranties or covenants made by the Company in this Agreement or any other
Transaction Document. The conduct of any Proceedings for which indemnification
is available under this paragraph shall be governed by Section 6.4(c) below. The
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indemnification obligations of the Company under this paragraph shall be in
addition to any liability that the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Purchasers and any such Related Persons. If the
Company breaches its obligations under any Transaction Document, then, in
addition to any other liabilities the Company may have under any Transaction
Document or applicable law, the Company shall pay or reimburse the Purchasers on
demand for all costs of collection and enforcement (including reasonable
attorneys fees and expenses). Without limiting the generality of the foregoing,
the Company specifically agrees to reimburse the Purchasers on demand for all
costs of enforcing the indemnification obligations in this paragraph.
4.15 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Underlying Shares under the Transaction Documents or under any other agreement
between the Company and the Purchasers.
4.16 DELIVERY OF CERTIFICATES. In addition to any other rights
available to a Purchaser, if the Company fails to deliver to such Purchaser a
certificate representing Common Stock on the date on which delivery of such
certificate is required by any Transaction Document, and if after such date such
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
shares that the Purchaser anticipated receiving from the Company (a "BUY-IN"),
then the Company shall, within three Trading Days after such Purchaser's request
and in such Purchaser's discretion, either (i) pay cash to such Purchaser in an
amount equal to such Purchaser's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
PRICE"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Purchaser a certificate or certificates
representing such Common Stock and pay cash to such Purchaser in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.
4.17 COMMON STOCK EQUIVALENTS. The Company covenants that from and
after the Closing Date, the Company will not issue any floating Common Stock
Equivalents with an effective price or a number of underlying shares that floats
or resets or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock.
ARTICLE V.
CONDITIONS
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date;
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(b) PERFORMANCE. The Company and each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing;
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;
(d) ADVERSE CHANGES. Since the date of execution of this Agreement,
no event or series of events shall have occurred that reasonably would be
expected to have or result in a Material Adverse Effect; and
(e) NO SUSPENSIONS OF TRADING IN COMMON STOCK; LISTING. Trading in
the Common Stock shall not have been suspended by the Commission (except for any
suspensions of trading of not more than one Trading Day solely to permit
dissemination of material information regarding the Company) at any time since
the date of execution of this Agreement.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(b) PERFORMANCE. Each of the Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing; and
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
ARTICLE VI.
REGISTRATION RIGHTS
6.1 SHELF REGISTRATION.
(a) As promptly as possible, and in any event on or prior to the
Filing Date, the Company shall prepare and file with the Commission a "shelf"
Registration Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. If for any
reason the Commission does not permit all of the Registrable Securities to be
22
included in such Registration Statement, then the Company shall prepare and file
with the Commission a separate Registration Statement with respect to any such
Registrable Securities not included with the initial Registration Statements, as
expeditiously as possible, but in no event later than the date which is 30 days
after the date on which the Commission shall indicate as being the first date
such filing may be made. The Registration Statement shall be on Form S-1, Form
SB-2 or any other registration statement available to the Company and shall
contain (except if otherwise directed by the Purchasers) the "Plan of
Distribution", substantially as attached hereto as EXHIBIT H.
(b) The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the fifth
anniversary of the Effective Date or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold publicly (the
"EFFECTIVENESS Period").
(c) The Company shall notify each Purchaser in writing promptly
(and in any event within one business day) after receiving notification from the
Commission that the Registration Statement has been declared effective.
(d) If: (i) any Registration Statement is not filed on or prior to
the Filing Date (if the Company files such Registration Statement without
affording the Purchasers the opportunity to review and comment on the same as
required by Section 6.2(a) hereof, the Company shall not be deemed to have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five Trading Days after the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or will not be
subject to further review, or (iii) the Company fails to respond to any comments
made by the Commission within 10 Trading Days after the receipt of such comments
(other than comments relating to financial reporting, accounting or similar
matters with respect to which the Company would consult with its independent
accountants in preparing its responses), or (iv) a Registration Statement filed
hereunder is not declared effective by the Commission by the Required
Effectiveness Date, or (v) after a Registration Statement is filed with and
declared effective by the Commission, such Registration Statement ceases to be
effective as to all Registrable Securities to which it is required to relate at
any time prior to the expiration of the Effectiveness Period without being
succeeded within 10 Trading Days by an amendment to such Registration Statement
or by a subsequent Registration Statement filed with and declared effective by
the Commission, or (vi) an amendment to a Registration Statement is not filed by
the Company with the Commission within 10 Trading Days after the Commission's
having notified the Company that such amendment is required in order for such
Registration Statement to be declared effective, or (vii) the exercise rights of
the Purchasers pursuant to the Warrants are suspended for any reason (any such
failure or breach being referred to as an "EVENT," and for purposes of clause
(i), (iv) or (viii) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five Trading Day period is exceeded, or for
purposes of clauses (iii), (v) or (vi) the date which such ten Trading
Day-period is exceeded, or for purposes of clause (vii) the date on which such
three Trading Day period is exceeded, being referred to as "EVENT DATE"), then:
(x) on each such Event Date the Company shall pay to each Purchaser an amount in
cash, as partial liquidated damages and not as a penalty, equal to 2% of the
26
aggregate purchase price paid by such Purchaser pursuant to the Purchase
Agreement; and (y) on each monthly anniversary of each such Event Date thereof
(if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Purchaser an amount in
cash, as partial liquidated damages and not as a penalty, equal to 2% of the
aggregate purchase price paid by such Purchaser pursuant to the Purchase
Agreement. Such payments shall be in partial compensation to the Purchasers and
shall not constitute the Purchaser's exclusive remedy for such events. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 12% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Purchaser, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full.
(e) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities.
(f) Notwithstanding anything to the contrary, each Purchaser shall
have the right to cause the Company to pay any cash amounts due under Section
6.1(d) in freely tradable and registered Common Stock, including shares of
Common Stock registered under the Registration Statement but not issued to the
Purchasers. In the event that a Purchaser elects to receive shares of Common
Stock, the number of shares of Common Stock to be issued to such Purchaser as
such payment under Section 6.1(d) shall be determined by dividing the aggregate
amount of due to such Purchaser by the Market Price (as defined below) as of the
date of payment, and rounding up to the nearest whole share. The term "Market
Price" shall mean 90% of the arithmetic average of the VWAP for the 20 Trading
Days prior to the applicable date of payment (not including such date).
(g) If the Company issues to the Purchasers any Common Stock
pursuant to the Transaction Documents that is not included in the initial
Registration Statement, then the Company shall file an additional Registration
Statement covering such number of shares of Common Stock on or prior to the
Filing Date and shall use it best efforts, but in no event later than the
Required Filing Date, to cause such additional Registration Statement to become
effective by the Commission.
6.2 REGISTRATION PROCEDURES. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Purchasers and Purchaser Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Purchasers and
Purchaser Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which Purchasers holding a majority of the Registrable
Securities shall reasonably object.
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(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented
(c) Notify the Purchasers of Registrable Securities to be sold and
Purchaser Counsel as promptly as reasonably possible, and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration Statement (in which case the
Company shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included or incorporated by reference
in any Registration Statement become ineligible for inclusion or incorporation
therein or any statement made in any Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration Statement,
Prospectus or other document is required so that it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
28
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.
(e) Furnish to each Purchaser and Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(f) Promptly deliver to each Purchaser and Purchaser Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the
Purchasers evidence of such listing; and (iv) maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Purchasers and
Purchaser Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Purchaser requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by this Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Purchasers may request.
(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
29
(k) Cooperate with any due diligence investigation undertaken by
the Purchasers in connection with the sale of Registrable Securities, including,
without limitation, by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.
(l) Comply with all applicable rules and regulations of the
Commission.
6.3 REGISTRATION EXPENSES. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
disbursements of counsel for the Company and up to $5,000 for the Purchaser
Counsel, (e) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the Trading
Market.
6.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Purchaser, the officers, directors, partners, members, agents, brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Purchaser (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that (i)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount by which the net proceeds received by such
Purchaser upon the sale of the Registrable Securities giving rise to such
indemnification obligation exceeds the amount paid, directly or indirectly, by
such Purchaser for such Registrable Securities.
30
(b) INDEMNIFICATION BY PURCHASERS. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in the light of the circumstances under which they were
made) not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
31
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6.4(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
32
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.5 DISPOSITIONS. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.
6.6 NO PIGGYBACK ON REGISTRATIONS. Except as set forth on Schedule
3.2(v), neither the Company nor any of its security holders (other than the
Purchasers in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not after the date hereof enter into any agreement providing
any such right to any of its security holders.
6.7 PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.
33
ARTICLE VII.
MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to xxx for
any breach by the other party (or parties).
7.2 FEES AND EXPENSES. At the Closing, the Company shall pay to
Iroquois Master Fund Ltd. an aggregate of $50,000 for their legal fees and
expenses incurred in connection with the preparation and negotiation of this
Agreement, of which amount $20,000 has been previously paid by the Company. In
lieu of the foregoing remaining payment, Iroquois Master Fund Ltd. may retain
such amount at the Closing. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.
7.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.
7.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (ii) the Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Agreement later than 6:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
34
If to the Company: Vaso Active Pharmaceuticals, Inc.
00 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxxx, President
Fax No.: (000) 000-0000
With a copy to: With a copy to:
Xxxxxxxx Xxxxxx LLP
3200 Mellon Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxx/Xxxxxxx Xxxxx
Fax No.: (000) 000-0000
If to the Purchasers: To the address set forth under such Purchaser's
name on the signature pages attached hereto.
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
7.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Purchasers under Article VI and that does not directly or indirectly affect the
rights of other Purchasers may be given by Purchasers holding at least a
majority of the Registrable Securities to which such waiver or consent relates.
7.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.
35
7.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.14 and each Indemnified Party is an intended third
party beneficiary of Section 6.4 and (in each case) may enforce the provisions
of such Sections directly against the parties with obligations thereunder.
7.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of this Agreement), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or any
of the Transaction Documents or the transactions contemplated hereby or thereby.
If either party shall commence an action or proceeding to enforce any provisions
of this Agreement or any Transaction Document, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys fees and other reasonable costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
7.10 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.
36
7.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
7.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
7.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
7.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
7.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or any Purchaser enforces or exercises
its rights hereunder or thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company by a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
37
7.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate of interest
applicable to the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
7.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Notes pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. The Company hereby confirms that it understands and agrees
that the Purchasers are not acting as a "group" as that term is used in Section
13(d) of the Exchange Act. Each Purchaser acknowledges that no other Purchaser
has acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser represents that it has been represented by its own separate legal
counsel in its review and negotiations of this Agreement and the Transaction
Documents and each party represents and confirms that Proskauer Rose LLP
represents only Iroquois Master Fund Ltd. in connection with this Agreement and
the Transaction Documents.
38
7.19 ADJUSTMENTS IN SHARE NUMBERS AND PRICES. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in this Agreement to a number of shares or a price per share shall be
amended to appropriately account for such event.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
39
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
VASO ACTIVE PHARMACEUTICALS, INC.
By:
--------------------------------
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS FOLLOW.]
40
IROQUOIS MASTER FUND LTD.
By:
--------------------------------
Name:
Title:
Aggregate Purchase Price: $
Initial Notes Principal Amount: $
Warrant Shares:
Additional Investment Right -
Additional Notes: $
Additional Investment Right -
Warrant Shares:
Address for Notice:
Iroquois Master Fund Ltd.
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn.: Xxxxxx Xxxxxxxxx
With a copy to:
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
41
[OTHER PURCHASERS]
By:
---------------------------------------------
Name:
Title:
Aggregate Purchase Price: $
Initial Notes Principal Amount: $
Warrant Shares:
Additional Investment Right -
Additional Notes: $
Additional Investment Right -
Warrant Shares:
Address for Notice:
42
EXHIBITS:
---------
A. Form of Additional Investment Right
B. Form of Note
C. Form of Warrant
D. Form of Pledge Agreement
E. Form of Security Agreement
F. Transfer Agent Instructions
G. Opinion of Company Counsel
H. Plan of Distribution
I. Escrow Agreement
SCHEDULES:
----------
3.1(a) Subsidiaries
3.1(e) Required Approvals
3.1(g) Capitalization
3.1(j) Litigation
3.1(t) Certain Fees
3.1(v) Registration Rights
3.1(aa) Ranking
43
EXHIBIT A
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS AND THE COMPANY MAY, IN ACCORDANCE WITH SECTION
4.1(A) OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AUGUST 16, 2005,
AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES THEREOF,
REQUIRE AN OPINION OF COUNSEL REGARDING SUCH MATTERS. NOTWITHSTANDING THE
FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
VASO ACTIVE PHARMACEUTICALS, INC.
ADDITIONAL INVESTMENT RIGHT
Additional Investment Right No. [ ] Dated: August 16, 2005
Vaso Active Pharmaceuticals, Inc., a Delaware corporation (the
"COMPANY"), hereby certifies that, for value received, [Name of Holder] or its
registered assigns (the "HOLDER"), is entitled to purchase from the Company (a)
up to a total of [$_________](1) in principal amount of Senior Secured
Convertible Notes due May 1, 2007 of the Company in substantially the form
attached to the Purchase Agreement as EXHIBIT A hereto (each such note, an
"ADDITIONAL NOTE" and all such notes, the "ADDITIONAL NOTES") and (b) only as
part of and in connection with the purchase of the Additional Notes, warrants in
the form attached hereto as EXHIBIT B to acquire up to an aggregate of
[_________](2) shares of Common Stock (the "ADDITIONAL INVESTMENT RIGHT
WARRANTS"), at any time or from time to time from and after Closing Date and
through and including the Maturity Date (as such date may be extended as
provided in Section 4(a), the "EXPIRATION DATE"), and subject to the following
terms and conditions. This Additional Investment Right (this "ADDITIONAL
INVESTMENT RIGHT") is one of a series of similar Additional Investment Rights
issued pursuant to that certain Securities Purchase Agreement, dated as of the
date hereof, by and among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"). All such Additional Investment Rights are referred to
herein, collectively, as the "ADDITIONAL INVESTMENT RIGHTS."
______________
(1) Insert holder's pro rata portion of $1,875,000.
(2) The number of shares of Common Stock equal to 40% of the quotient obtained
by dividing (i) the aggregate principal amount of the Additional Notes issued to
the Holder by (ii) $0.77.
1. DEFINITIONS. Capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Purchase Agreement.
2. REGISTRATION OF ADDITIONAL INVESTMENT RIGHT. The Company shall
register this Additional Investment Right, upon records to be maintained by the
Company for that purpose (the "ADDITIONAL INVESTMENT RIGHT Register"), in the
name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Additional Investment Right as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. REGISTRATION OF TRANSFERS.
(a) The Holder may assign and transfer this Additional Investment
Right (or any part thereof), provided that (i) the Holder effects such
assignment in compliance with (A) Section 4.1 of the Purchase Agreement and with
(B) all applicable laws and regulations, including laws relating to the
registration of securities under the Securities Act; and (ii) the Holder may not
effect any such assignment and transfer more than four (4) times in any twelve
(12) month period.
(b) The Company shall register the assignment and transfer of any
portion of this Additional Investment Right in the Additional Investment Right
Register, upon surrender of this Additional Investment Right, with the Form of
Assignment attached hereto on ANNEX B duly completed and signed, to the Company
at its address specified herein. Upon any such registration or transfer, a new
additional investment right to purchase Additional Notes, in substantially the
form of this Additional Investment Right (any such new additional investment
right, a "NEW ADDITIONAL INVESTMENT RIGHT"), evidencing the portion of this
Additional Investment Right so transferred shall be issued to the transferee and
a New Additional Investment Right evidencing the remaining portion of this
Additional Investment Right not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Additional Investment Right by
the transferee thereof shall be deemed the acceptance by such transferee of all
of the rights and obligations of a holder of an Additional Investment Right.
4. EXERCISE AND DURATION OF ADDITIONAL INVESTMENT RIGHT.
(a) This Additional Investment Right shall be exercisable by the
registered Holder at any time or from time to time on or after the Closing Date
to and including the Expiration Date. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Additional Investment Right not exercised
prior thereto shall be void and of no further force and effect. Notwithstanding
the foregoing, the Expiration Date may be extended for the number of Trading
Days during any period occurring after the Required Effectiveness Date in which
(i) trading in the Common Stock is suspended by any Trading Market, (ii) the
Registration Statement is not effective, or (iii) the prospectus included in the
Registration Statement may not be used by the Holders for the resale of
Registrable Securities thereunder.
2
(b) The Holder may exercise this Additional Investment Right by
delivering to the Company (i) an exercise notice, in the form attached hereto on
ANNEX A (the "EXERCISE NOTICE"), appropriately completed and duly signed and
(ii) payment of the principal amount of the Additional Notes as to which this
Additional Investment Right is being exercised (the "EXERCISE PRICE"). The date
such items are delivered to the Company (as determined in accordance with the
notice provisions hereof) is an "EXERCISE DATE." The Holder shall not be
required to deliver the original Additional Investment Right in order to effect
an exercise hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Additional Investment Right and
issuance of a New Additional Investment Right evidencing the right to purchase
the remaining number of Additional Notes and Additional Investment Right
Warrants.
5. DELIVERY OF ADDITIONAL NOTES AND ADDITIONAL INVESTMENT RIGHT
WARRANTS.
(a) Upon exercise of this Additional Investment Right, the Company
shall promptly (but in no event later than three Trading Days after the Exercise
Date) issue or cause to be issued and cause to be delivered to or upon the
written order of the Holder and in such name or names as the Holder may
designate, (i) a certificate for the Additional Notes and Additional Investment
Right Warrants issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Additional Notes, the
Additional Investment Right Warrants or the Underlying Shares to be issued
thereunder, as the case may be, and naming the Holder as a selling stockholder
thereunder is not then effective and the Additional Notes or Additional
Investment Right Warrants, or the Underlying Shares associated therewith, are
not freely transferable without volume restrictions pursuant to Rule 144 under
the Securities Act, (ii) the legal opinions of Company Counsel, substantially in
the form of EXHIBIT F to the Purchase Agreement, executed by such counsel and
delivered to the Holders relating to the Additional Notes and Additional
Investment Right Warrants, and (iv) a certificate from an officer of the Company
that each of the representations and warranties of the Company set forth in
Section 3.1 of the Purchase Agreement is true and correct as of the date when
made, except for such representations and warranties that speak as of a certain
date, and in such case shall have been true and correct as of such date, and as
of the Exercise Date as though made on and as of such date, and each of the
other conditions set forth in Section 5.1 of the Purchase Agreement have been
satisfied as of the Exercise Date. The Holder, or any Person so designated by
the Holder to receive Additional Notes or Additional Investment Right Warrants,
shall be deemed to have become holder of record of such Additional Notes or
Additional Investment Right Warrants as of the Exercise Date. The Company shall,
upon request of the Holder and if the Notes meet the requirements therefore, use
its best efforts to deliver Additional Notes hereunder electronically through
the Depository Trust Corporation or another established clearing corporation
performing similar functions.
3
(b) This Additional Investment Right is exercisable, either in its
entirety or, from time to time, for a portion of the number of Additional Notes
and Additional Investment Right Warrants. Upon surrender of this Additional
Investment Right following one or more partial exercises, the Company shall
issue or cause to be issued, at its expense, a New Additional Investment Right
evidencing the right to purchase the remaining number of Additional Notes and
Additional Investment Right Warrants.
(c) In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Additional
Notes and Additional Investment Right Warrants or the shares of Common Stock
issuable upon conversion of the Additional Notes or the exercise of the
Additional Investment Right Warrants on the date on which delivery of such
certificate is required by this Additional Investment Right, an Additional Note
or any Additional Investment Right Warrant, and if after such date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Common Stock that the
Holder anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within three Trading Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
(d) The Company's obligations to issue and deliver Additional Notes
and Additional Investment Right Warrants in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any set-off, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other Person of any obligation
to the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Additional Notes and Additional Investment Right Warrants. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing Additional Notes upon
exercise of the Additional Investment Right as required pursuant to the terms
hereof.
6. CHARGES, TAXES AND EXPENSES. Issuance and delivery of certificates
for Additional Notes and Additional Investment Right Warrants upon exercise of
this Additional Investment Right shall be made without charge to the Holder for
any issue or transfer tax, withholding tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Additional Investment Right or receiving Additional Notes and
Additional Investment Right Warrants upon exercise hereof.
4
7. REPLACEMENT OF ADDITIONAL INVESTMENT RIGHT. If this Additional
Investment Right is mutilated, lost, stolen or destroyed, the Company shall
issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Additional
Investment Right, a New Additional Investment Right, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested.
8. RESERVATION OF COMMON STOCK(1). The Company covenants that it will
at all times reserve and keep available out of its authorized but unissued and
otherwise unreserved Common Stock, solely for the purpose of enabling it to
issue Common Stock issuable upon conversion of Additional Notes and Additional
Investment Right Warrants as therein provided. The Company covenants that all
Additional Notes and Additional Investment Right Warrants so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. The Company will take all such action
as may be necessary to assure that any shares of Common Stock issuable upon
conversion of the Additional Notes and exercise of the Additional Investment
Right Warrants may be issued as provided therein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. CERTAIN ADJUSTMENTS. The Conversion Price and other terms of the
Additional Notes issuable upon exercise of this Additional Investment Right
shall be subject to adjustment from time to time as set forth in the Additional
Notes. The exercise price and other terms of the Additional Investment Right
Warrants issuable upon exercise of this Additional Investment Right shall be
subject to adjustment from time to time as set forth in the Additional
Investment Right Warrants. At least 30 days prior to any such event or
transaction involving a Fundamental Change (as defined in the Additional Note)
or otherwise potentially giving rise to an adjustment or modification of the
terms and provisions of the Additional Note, the Company will give the Holder
notice thereof of the date of the transaction and the effect thereof on the
terms of the Additional Notes. The Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to exercise this Additional Investment Right prior to the time of such event or
transaction so as to participate in or vote with respect to such event or
transaction.
10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price
in immediately available funds to the Company in the manner specified by the
Company in the Purchase Agreement.
--------------------
(1) Subject to the share reservation provisions of Section 4.5(a) of the
Securities Purchase Agreement referred to above.
5
11. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of deposit with a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address and facsimile numbers for such notices or
communications shall be as set forth in the Purchase Agreement.
12. MISCELLANEOUS.
(a) Subject to the restrictions on transfer set forth on the first
page hereof, this Additional Investment Right may be assigned by the Holder.
This Additional Investment Right may not be assigned by the Company except to a
successor in the event of a Fundamental Change (as defined in the Additional
Note). This Additional Investment Right shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Additional Investment Right
shall be construed to give to any Person other than the Company and the Holder
any legal or equitable right, remedy or cause of action under this Additional
Investment Right. This Additional Investment Right may be amended only in
writing signed by the Company and the Holder, their respective successors or
permitted assigns.
(b) The Company will not, by amendment of its governing documents
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Additional Investment Right, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
impairment.
(c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
ADDITIONAL INVESTMENT RIGHT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY AGREES THAT ALL LEGAL
PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE
TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS (WHETHER BROUGHT
AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS,
SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE
AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN. EACH
PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH
ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT
TO THE ENFORCEMENT OF ANY OF THIS ADDITIONAL INVESTMENT RIGHT), AND HEREBY
IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING,
6
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
ADDITIONAL INVESTMENT RIGHT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS ADDITIONAL INVESTMENT RIGHT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF EITHER PARTY SHALL COMMENCE AN
ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS ADDITIONAL INVESTMENT
RIGHT OR ANY TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN SUCH ACTION OR
PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE ATTORNEYS
FEES AND OTHER REASONABLE COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION,
PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.
(d) The headings herein are for convenience only, do not constitute
a part of this Additional Investment Right and shall not be deemed to limit or
affect any of the provisions hereof.
(e) In case any one or more of the provisions of this Additional
Investment Right shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Additional
Investment Right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
7
IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to be duly executed by its authorized officer as of the date first
indicated above.
VASO ACTIVE PHARMACEUTICALS, INC.
By:
Name:
Title:
8
ANNEX A
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase $______________
principal amount of Additional Notes under the foregoing Additional Investment
Right)
To: Vaso Active Pharmaceutical, Inc.
The undersigned is the Holder of Additional Investment Right No. _______ (the
"ADDITIONAL INVESTMENT RIGHT") issued by Vaso Active Pharmaceutical, Inc, a
Delaware corporation (the "COMPANY"). Capitalized terms used herein and not
otherwise defined have the respective meanings set forth in the Additional
Investment Right.
1. The Additional Investment Right is currently exercisable to purchase a
total of $______________ principal amount of Additional Notes.
2. The undersigned Holder hereby exercises its right to purchase
_________________ $______________ principal amount of Additional Notes
pursuant to the Additional Investment Right.
3. The Holder shall pay the sum of $____________ to the Company in
accordance with the terms of the Additional Investment Right.
4. Pursuant to this exercise, the Company shall deliver to the Holder
$______________ principal amount of Additional Notes and Additional
Investment Right Warrants exercisable for __________ shares of Common
Stock in accordance with the terms of the Additional Investment Right.
5. Following this exercise, the Additional Investment Right shall be
exercisable to purchase a total of $______________ principal amount of
Additional Notes and Additional Investment Right Warrants exercisable
for ____________ shares of Common Stock.
Dated: ______________, ____ Name of Holder:
(Print)_____________________________________
By:_________________________________________
Name:_______________________________________
Title:______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Additional Investment Right)
ANNEX B
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Additional Investment
Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Additional Investment Right to purchase $______________ principal amount of
Additional Notes and Additional Investment Right Warrants exercisable for
__________ shares of Common Stock of Vaso Active Pharmaceutical, Inc to which
the within Additional Investment Right relates and appoints ________________
attorney to transfer said right on the books of Vaso Active Pharmaceutical, Inc
with full power of substitution in the premises.
Dated:_______________, ____
____________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Additional Investment Right)
____________________________________________
Address of Transferee
____________________________________________
____________________________________________
In the presence of:
____________________________
EXHIBIT B
---------
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AND THE COMPANY MAY, IN ACCORDANCE WITH SECTION
4.1(a) OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AUGUST 16, 2005,
AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES THEREOF,
REQUIRE AN OPINION OF COUNSEL REGARDING SUCH MATTERS. NOTWITHSTANDING THE
FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ] $[ ]
Date: August 16, 2005
VASO ACTIVE PHARMACEUTICALS, INC.
SENIOR SECURED CONVERTIBLE NOTE DUE
MAY 1, 2007(1)
THIS NOTE is one of a series of duly authorized and issued Notes of
Vaso Active Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY"),
designated as its Senior Secured Convertible Notes due May 1, 2007, in the
aggregate principal amount of $2,500,000 (the "NOTES").
FOR VALUE RECEIVED, the Company promises to pay to the order of
[Holder] or its registered assigns (the "Holder"), the principal sum of
[__________] $(__________), in accordance with the terms and conditions
hereunder, with the final payment on _______ __, 2007 (the "MATURITY DATE"), or
such earlier date as the Notes are required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the unconverted and
then outstanding principal amount of this Note in accordance with the provisions
hereof. The principal amount of this Note may be increased as set forth in
Section 2(c) below.
(1) The note under the AIR will be substantially the same as this note except
that such note will have a maturity day 21 months following the initial issuance
date and clause (c) in the definitions of "Triggering Event" such note will
reflect, as appropriate, the share reservation provisions of Section 4.5(a) of
the Securities Purchase Agreements referred to above.
Notwithstanding the foregoing, the Company hereby unconditionally promises to
pay to the order of the Holder interest on any principal or interest payable
hereunder that shall not be paid in full when due, whether at the time of any
stated interest payment date or maturity or by prepayment, acceleration or
declaration or otherwise, for the period from and including the due date of such
payment to but excluding the date the same is paid in full, at a rate of [18%]
per annum (but in no event in excess of the maximum rate permitted under
applicable law).
Interest payable under this Note shall be computed on the basis of a
year of 360 days and actual days elapsed (including the first day but excluding
the last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in SECTION 13
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in SECTION 13.
The Holder of this Note is entitled to the benefits of the Security
Agreement and the Pledge Agreement.
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Note, (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Securities Purchase Agreement, dated as of
August 16, 2005, among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated:
"COMPANY PREPAYMENT PRICE" for any Notes which shall be
subject to prepayment pursuant to Section 8(a), shall equal the sum of:
(i) the principal amount of Notes to be prepaid, plus all accrued and
unpaid interest thereon, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Notes.
"CONVERSION DATE" means the date a Conversion Notice is
delivered to the Company together with the Conversion Schedule pursuant
to SECTION 6(a).
"CONVERSION NOTICE" means a written notice in the form
attached hereto as SCHEDULE 1.
"CONVERSION PRICE" means $0.70(2).
"EQUITY CONDITIONS" means, with respect to a specified
issuance of Common Stock, that each of the following conditions is
satisfied: (i) the number of authorized but unissued and otherwise
unreserved shares of Common Stock is sufficient for such issuance; (ii)
such shares of Common Stock are registered for resale by the Holder and
may be sold by the Holder pursuant to an effective Registration
Statement covering the Underlying Shares or all such shares may be sold
without volume restrictions pursuant to Rule 144(k) under the
Securities Act; (iii) the Common Stock is listed or quoted (and is not
(2) The AIR note Conversion Price will be $0.77 per share.
2
suspended from trading) on an Eligible Market and such shares of Common
Stock are approved for listing upon issuance; (iv) such issuance would
be permitted in full without violating SECTION 6(b) hereof or the rules
or regulations of any Trading Market; (v) no Bankruptcy Event has
occurred; (vi) the Company is not in default with respect to any
material obligation hereunder or under any other Transaction Document;
and (vii) no public announcement of a pending or proposed Change of
Control transaction has occurred that has not been consummated; (viii)
the Closing Price of the Common Stock shall equal or exceed 200% of the
Conversion Price for each of the immediately preceding 20 Trading Days
and (viii) the trading volume of the Company on the applicable Trading
Market shall equal or exceed 100,000 shares per day for each of the
immediately preceding 20 Trading Days.
"EVENT EQUITY VALUE" means 115% of the average of the Closing
Prices for the five Trading Days preceding the date of delivery of the
notice requiring payment of the Event Equity Value, PROVIDED that if
the Company does not make such required payment (together with any
other payments, expenses and liquidated damages then due and payable
under the Transaction Documents) when due or, in the event the Company
disputes in good faith the occurrence of the Triggering Event pursuant
to which such notice relates, does not instead deposit such required
payment (together with such other payments, expenses and liquidated
damages then due) in escrow with an independent third-party escrow
agent within five Trading Days of the date such required payment is
due, then the Event Equity Value shall be 115% of the greater of (a)
the average of the Closing Prices for the five Trading Days preceding
the date of delivery of the notice requiring payment of the Event
Equity Value and (b) the average of the Closing Prices for the five
Trading Days preceding the date on which such required payment
(together with such other payments, expenses and liquidated damages) is
paid in full.
"INITIAL INTEREST PERIOD" means the period beginning on the
Closing Date and ending on October 31, 2005.
"INTEREST PERIOD" means a period of six months for the
calculation of the interest on the Note, provided that any such period
(i) shall start on the last day of the preceding period (other than the
Initial Interest Period); (ii) which would otherwise end on a day which
is not a Trading Day shall be extended to the next succeeding day which
is a Trading Day and the following interest period shall then end on
the day on which it would have ended if the preceding interest period
had not been so extended; and (iii) which would otherwise overrun the
Maturity Date shall be shortened to end on the Maturity Date.
"INTEREST RATE" has the meaning set forth in Section 2(a)
herein.
"LIBOR" means, in respect of a six-month Interest Period (i)
the rate of interest per annum (expressed with a maximum of 4 decimals)
offered for deposits in the relevant currency and amount which appears
on Telerate page 3750 or on any other relevant Telerate, Bloomberg or
Reuter page as of 11:00 a.m. London time two (2) Business Days prior to
the commencement of the relevant Interest Period; or (ii) should such
3
quotation not be published on the relevant day and time such interest
rate per annum according to such other widely published LIBOR quotation
as the Company may select for the relevant Interest Period as of 11:00
a.m. London time two (2) Business Days prior to the commencement of the
Interest Period.
"ORIGINAL ISSUE DATE" means the date of the first issuance of
any Notes, regardless of the number of transfers of any particular
Note.
"TRIGGERING EVENT" means any of the following events: (a) the
Common Stock is not listed or quoted, or is suspended from trading, on
an Eligible Market after the Common Stock is first listed or quoted on
an Eligible Market following the date of the Purchase Agreement (it
being understood that the Company's Common Stock is not currently
listed or quoted on an eligible Market) for a period of ten or more
Trading Days (which need not be consecutive Trading Days); (b) the
Company fails for any reason to deliver [a] certificate evidencing any
Securities to [a] Purchaser within five Trading Days after delivery of
such certificate is required pursuant to any Transaction Document or
the exercise or conversion rights of the Holders pursuant to any
Transaction Document are otherwise suspended for any reason; (c) the
Company fails to have available a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock available to
issue Underlying Shares upon any exercise of the Note; (d) the Company
effects or publicly announces its intention to effect any exchange,
recapitalization or other transaction that effectively requires or
rewards physical delivery of certificates evidencing the Common Stock;
(e) the effectiveness of the Registration Statement lapses for any
reason or the Holder shall not be permitted to resell any Underlying
Shares under the Registration Statement, in either case, for five or
more Trading Days (which need not be consecutive Trading Days); (f) the
Company fails to make any cash payment required under the Transaction
Documents and such failure is not cured within five days after notice
of such default is first given to the Company by a Purchaser; (g) the
Company defaults in the timely performance of any material obligation
under the Transaction Documents and such default continues uncured for
a period of 20 days after the date on which notice of such default is
first given to the Company by a Purchaser (it being understood that no
prior notice need be given in the case of a default that cannot
reasonably be cured within 20 days); or (h) the Company materially
breaches any of its representations or warranties under the Transaction
Documents.
2. INTEREST.
(a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note for each Interest
Period at a rate (the "INTEREST RATE") which is the greater of (i) 10% per annum
or (ii) LIBOR plus 600 basis points per annum; provided at no time shall the
Interest Rate exceed 12% per annum. Each Interest Period, other than the Initial
Interest Period shall begin on either May 1 or November 1 of each year occurring
prior to the Maturity Date. Interest shall be payable quarterly in arrears on
each July 31, October 31, January 30 and April 30, except if such date is not a
Trading Day, in which case such interest shall be payable on the next succeeding
Trading Day (each, an "INTEREST PAYMENT DATE"). The first Interest Payment Date
shall be October 31, 2005.
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(b) Subject to the conditions and limitations set forth below, the
Company may pay interest on this Note in (i) cash or (ii) shares of registered
Common Stock. The Company must deliver written notice to the Holder indicating
the manner in which it intends to pay interest and principal at least 30 Trading
Days prior to each Interest Payment Date but the Company may indicate in any
such notice that the election contained therein shall continue for subsequent
Interest Payment Dates until revised. Failure to timely provide such written
notice shall be deemed an election by the Company to pay the amount of any
interest in cash.
(c) Notwithstanding the foregoing, the Company may not pay interest or
principal by issuing shares of Common Stock unless all of the Equity Conditions
are then satisfied with respect to all shares of Common Stock then issuable upon
conversion of all outstanding Notes and Warrants. If the Company is required to
pay interest in cash on any Interest Payment Date but fails to do so, the Holder
may (but shall not be required to) treat such interest as if it had been added
to the principal amount of this Note as of such Interest Payment Date or accept
any number of shares of Common Stock in lieu of such interest payment.
(d) In the event that the Company elects to pay interest on any
Interest Payment Date in shares of Common Stock, the number of shares of Common
Stock to be issued to each Holder as such interest or principal shall be (i)
determined by dividing the aggregate amount of interest then payable to such
Holder by the Market Price (as defined below) as of the applicable Interest
Payment Date, and rounding up to the nearest whole share and (ii) paid to such
Holder in accordance with Section 2(e) below. The term "MARKET PRICE" shall mean
90% of the arithmetic average of the VWAP for the 20 Trading Days prior to the
applicable Interest Payment Date (not including such date).
(e) In the event that any interest is paid in Common Stock, the Company
shall on such Interest Payment Date (i) issue and deliver to such Holder a
certificate, free of restrictive legends, registered in the name of the Holder
or its designee, for the number of shares of Common Stock to which the Holder
shall be entitled, or (ii) at all times after the Holder has notified the
Company that this clause (ii) shall apply, credit the number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its designee's
balance account with The Depository Trust Company through its Deposit Withdrawal
Agent Commission System.
(f) In the event that any interest is paid in Common Stock, the cash
payment will be paid to the Holder from the Escrow Account. If at such time, the
Interest Rate shall exceed 10% per annum, the Company shall deposit into the
Escrow Account an amount equal to the difference between (i) the product of (a)
the actual Interest Rate, (b) the then outstanding principal amount of this Note
on such Interest Payment Date and (c) 0.25 and (ii) the product of (a) 0.025 and
(b) the then outstanding principal amount of this Note on such Interest Payment
Date.
3. RANKING AND COVENANTS.
(a) Except as set forth in SCHEDULE 3.1(aa) or as otherwise permitted
in Section 4.10(a) of the Purchase Agreement (the "EXISTING INDEBTEDNESS"), no
indebtedness of the Company is senior to or pari passu with this Note in right
of payment, whether with respect to principal, interest, damages or upon
5
liquidation or dissolution or otherwise. Other than the Existing Indebtedness
and any renewal, refinancing or replacement thereof that does not exceed the
aggregate amount of the Existing Indebtedness and the borrowing availability
under the related credit or loan agreements on the date hereof, the Company will
not, and will not permit any Subsidiary to, directly or indirectly, enter into,
create, incur, assume or suffer to exist any indebtedness of any kind, that is
senior or pari passu in any respect to the Company's obligations under the
Notes, other than indebtedness secured by purchase money security interests
(which will be senior only as to the underlying assets covered thereby) and
indebtedness under capital lease obligations (which will be senior only as to
the assets covered thereby). The Company will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Lien on or with respect to any
of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom.
(b) So long as any Notes are outstanding, neither the Company nor any
Subsidiary shall, directly or indirectly, (i) redeem, purchase or otherwise
acquire any capital stock or set aside any monies for such a redemption,
purchase or other acquisition, except pursuant to Section 4.13(a) of the
Securities Purchase Agreement; or (ii) issue any Floating Price Security (as
defined in Section 10(d)(ii)).
(c) The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying Shares as
required hereunder, the number of Underlying Shares which are then issuable and
deliverable upon the conversion of (and otherwise in respect of) this entire
Note (taking into account the adjustments set forth in SECTION 10 and
disregarding any limitations set forth in SECTION 6(b)), free from preemptive
rights or any other contingent purchase rights of Persons other than the Holder.
The Company covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized and issued and fully paid and nonassessable.
(d) The Company covenants that at all times prior to the indefeasible
payment in full of the outstanding principal and interest on the Notes, it will
not at anytime other than on Interest Payments Dates withdraw any amounts from
the Escrow Account without the written consent of the Holders, which such amount
shall not exceed the aggregate interest payments due and owing on such Interest
Payment Date.
4. REGISTRATION OF NOTES. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "NOTE REGISTER")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this Note as the absolute owner hereof
for the purpose of any conversion hereof or any payment of interest or principal
hereon, and for all other purposes, absent actual notice to the contrary.
5. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Holder may assign and transfer this Note (or any part thereof),
provided that (i) the Holder effects such assignment in compliance with (A)
Section 4.1 of the Purchase Agreement and with (b) all applicable laws and
regulations, including laws relating to the registration of securities under the
Securities Act; and (ii) the Holder may not effect any such assignment and
transfer more than four (4) times in any twelve (12) month period.
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(b) The Company shall register the transfer of any portion of this Note
in the Note Register upon surrender of this Note to the Company at its address
for notice set forth herein. Upon any such registration or transfer, a new Note,
in substantially the form of this Note (any such new Note, a "NEW NOTE"),
evidencing the portion of this Note so transferred shall be issued to the
transferee and a New Note evidencing the remaining portion of this Note not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Note by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Note, provided
however, that there shall be no more than four such transfers during any twelve
month period beginning on Closing Date as defined in the Purchase Agreement.
This Note is exchangeable for an equal aggregate principal amount of Notes of
different authorized denominations, as requested by the Holder surrendering the
same. No service charge or other fee will be imposed in connection with any such
registration of transfer or exchange.
6. CONVERSION.
(a) AT THE OPTION OF THE HOLDER. All or any portion of this Note shall
be convertible into shares of Common Stock (subject to the limitations set forth
in SECTION 6(b)), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. The number of Underlying Shares issuable
upon any conversion hereunder shall equal the outstanding principal amount of
this Note to be converted, plus the amount of any accrued but unpaid interest on
this Note through the Conversion Date, divided by the Conversion Price on the
Conversion Date. The Holder shall effect conversions under this SECTION 6(a) by
delivering to the Company a Conversion Notice together with a schedule in the
form of SCHEDULE 2 attached hereto (the "CONVERSION SCHEDULE"). If the Holder is
converting less than all of the principal amount of this Note, or if a
conversion hereunder may not be effected in full due to the application of
SECTION 6(B), the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to the Holder a Conversion Schedule
indicating the principal amount (and accrued interest) which has not been
converted.
(b) CERTAIN CONVERSION RESTRICTIONS.
RELATING TO THE NUMBER OF SHARES.
---------------------------------
(A) Subject to Section 6(b)(B), the number of shares of Common
Stock that may be acquired by a Holder upon any conversion of Notes (or
otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by such
Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with such Holders for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999%
(the "THRESHOLD PERCENTAGE") or 9.999% (the "MAXIMUM PERCENTAGE") of
7
the total number of issued and outstanding shares of Common Stock
(including for such purpose the shares of Common Stock issuable upon
such conversion). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. Each delivery of a
Conversion Notice hereunder will constitute a representation by the
applicable Holder that it has evaluated the limitations set forth in
this SECTION 6(b)(a) and has determined that issuance of the full
number of Underlying Shares issuable in respect of such Conversion
Notice does not violate the restrictions contained in this SECTION
6(b)(a).
(B) Notwithstanding the provisions of Section 6(b)(a), by
written notice to the Company, the Holder shall have the right (x) at
any time and from time to time to reduce its Maximum Percentage
immediately upon notice to the Company in the event and only to the
extent that Section 16 of the Exchange Act or the rules promulgated
thereunder (or any successor statute or rules) is changed to reduce the
beneficial ownership percentage threshold thereunder to a percentage
less than 9.999% and (y) at any time and from time to time, to waive
the provisions of this Section insofar as they relate to the Threshold
Percentage or to increase its Threshold Percentage (but not in excess
of the Maximum Percentage) unless the Holder shall have, by written
instrument delivered to the Company, irrevocably waived its rights to
so increase its Threshold Percentage, but (i) any such waiver or
increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of
Notes.
(C) If the Company has not previously obtained Shareholder
Approval (as defined below), then the Company may not issue in excess
of the Issuable Maximum upon conversions of the Notes. The "ISSUABLE
MAXIMUM" means a number of shares equal to 19.99% of the of the
Company's outstanding shares on the Closing Date. Each Holder shall be
entitled to a portion of the Issuable Maximum equal to the quotient
obtained by dividing: (x) the principal amount of Notes issued and sold
to such Holder on the Original Issue Date by (y) the aggregate
principal amount of Notes issued and sold by the Company on the
Original Issue Date. If any Holder shall no longer hold Notes, then
such Holder's remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Holders. If on any Conversion
Date: (A) the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of all then outstanding
principal amount of Notes would exceed the Issuable Maximum, and (B)
the Company shall not have previously obtained the vote of
shareholders, as may be required by the applicable rules and
regulations of its Trading Market (or any successor entity) applicable
to approve the issuance of shares of Common Stock in excess of the
Issuable Maximum pursuant to the terms hereof (the "SHAREHOLDER
APPROVAL"), then, the Company shall issue to the converting Holder a
number of shares of Common Stock equal to such Holder's pro-rata
portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum and, with respect to the remainder of the principal
amount of Notes then held by such Holder for which a conversion would
result in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant to the
8
terms hereof) of the Issuable Maximum (the "EXCESS PRINCIPAL AMOUNT"),
the applicable Holder shall have the right to require the Company to
either: (1) obtain the Shareholder Approval applicable to such issuance
as soon as is possible, but in any event not later than the 60th day
after such request, or (2) pay cash, in an amount equal to the Excess
Principal Amount (and accrued and unpaid interest thereon). If a Holder
shall have elected the first option pursuant to the immediately
preceding sentence and the Company shall have failed to obtain the
Shareholder Approval on or prior to the 60th day after such request,
then within three (3) days of such 60th day, the Company shall pay cash
to such Holder an amount equal to Excess Principal Amount (and accrued
and unpaid interest thereon). Notwithstanding anything herein to the
contrary, if on any date other than a Conversion Date: (A) the
aggregate number of shares of Common Stock that would then be issuable
upon conversion in full of all then outstanding principal amount of
Notes would exceed the Issuable Maximum, and (B) the Company shall not
have previously obtained the Shareholder Approval, then, the Holder
shall be entitled to require the Company to pay to it in cash an amount
equal to the principal amount of Notes (and accrued and unpaid interest
thereon) then held by such Holder for which a potential conversion on
such date would result in an issuance of shares of Common Stock in
excess of such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum. The outstanding
principal amount of Notes shall be reduced by the Excess Principal
Amount upon the Holder's receipt of the Excess Principal Amount
pursuant to the terms hereof. The Company and the Holder understand and
agree that shares of Common Stock issued to and then held by the Holder
as a result of conversions of Notes shall not be entitled to cast votes
on any resolution to obtain Shareholder Approval pursuant hereto.
7. MECHANICS OF CONVERSION.
(a) Upon conversion of this Note, the Company shall promptly (but in no
event later than three Trading Days after the Conversion Date) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate a certificate for the
Underlying Shares issuable upon such conversion, free of restrictive legends
unless a registration statement covering the resale of the Underlying Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
such Underlying Shares are not then freely transferable without volume
restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any
Person so designated by the Holder to receive Underlying Shares, shall be deemed
to have become holder of record of such Underlying Shares as of the Conversion
Date. The Company shall, upon request of the Holder, use its best efforts to
deliver Underlying Shares hereunder electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.
(b) The Holder shall not be required to deliver the original Note in
order to effect a conversion hereunder. Execution and delivery of the Conversion
Notice shall have the same effect as cancellation of the original Note and
issuance of a New Note representing the remaining outstanding principal amount.
Upon surrender of this Note following one or more partial conversions, the
Company shall promptly deliver to the Holder a New Note representing the
remaining outstanding principal amount.
9
(c) The Company's obligations to issue and deliver Underlying Shares
upon conversion of this Note in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any set-off, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other Person of any obligation
to the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Underlying Shares.
(d) If by the third Trading Day after a Conversion Date the Company
fails to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to SECTION 7(a), then the Holder will have the right to
rescind such conversion.
(e) If by the third Trading Day after a Conversion Date the Company
fails to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to SECTION 7(a), and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall either (i) pay cash to such Purchaser in an
amount equal to such Purchaser's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
Price"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Purchaser a certificate or certificates
representing such Common Stock and pay cash to such Purchaser in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.
8. PREPAYMENT AT THE OPTION OF THE COMPANY
(a) At any time following the sixth month after the Effective Date,
upon delivery of a written notice to the Holder (a "COMPANY PREPAYMENT NOTICE"
and the date such notice is delivered by the Company, the "COMPANY NOTICE
DATE"), the Company shall be entitled to prepay all or any portion of the
outstanding principal amount of this Note plus any accrued and unpaid interest
thereon for an amount in cash equal to the Company Prepayment Price.
Notwithstanding anything to the contrary, the Company shall only be entitled to
deliver a Company Prepayment Notice pursuant to the terms hereof if the Equity
Conditions are satisfied with respect to all shares of Common Stock issuable
pursuant to the Transaction Documents on the Company Notice Date. If any of the
Equity Conditions shall cease to be in effect during the period between the
Company Notice Date and the date the Company Prepayment Price is paid in full,
then the Holder subject to such prepayment may elect, by written notice to the
Company given at any time after any of the Equity Conditions shall cease to be
in effect, to invalidate AB INITIO such optional prepayment, notwithstanding
anything herein contained to the contrary. The Holder may, within 5 Trading Days
of its receipt of the Company Prepayment Notice, convert any portion of the
outstanding principal amount of this Note and any accrued and unpaid interest
thereon subject to a Company Prepayment Notice. Once delivered, the Company
shall not be entitled to rescind a Company Prepayment Notice.
10
(b) The Company Prepayment Price shall be due on the 5th Trading Day
immediately following the Company Notice Date. Any such prepayment shall be free
of any claim of subordination. If any portion of the Company Prepayment Price
shall not be timely paid by the Company, interest shall accrue thereon at the
rate of 12% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the Company Prepayment Price plus all such interest is
paid in full, which payment shall constitute liquidated damages and not a
penalty. In addition, if any portion of the Company Prepayment Price remains
unpaid after such date, the Holder subject to such prepayment may elect by
written notice to the Company to invalidate AB INITIO such Company Prepayment
Notice with respect to the unpaid amount, notwithstanding anything herein
contained to the contrary and no interest shall be owed to the Holder in respect
thereof. If the Holder makes such an election, the principal amount of this
Note, together with the accrued and unpaid interest thereon shall be reinstated
with respect to such unpaid amount and the Company shall no longer have any
prepayment rights under this Section 8.
(c) Notwithstanding anything to the contrary herein, the Company may
not elect a prepayment pursuant to Section 8(a) unless the Company makes such
prepayment election to all of the Holder's on a pro rata basis, based on such
Holders then outstanding principal amount of Notes.
9. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT" means any one of the following events (whatever
the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in respect
of any Notes, as and when the same becomes due and payable (whether on
a date specified for the payment of interest or the date on which the
obligations under the Note mature or by acceleration, redemption,
prepayment or otherwise);
(ii) the Company or any Subsidiary defaults in any of
its obligations under any other note or any mortgage, credit agreement
or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company or
any Subsidiary in an amount exceeding $500,000, whether such
indebtedness now exists or is hereafter created, and such default
results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
(iii) the occurrence of a Triggering Event; or
11
(iv) the occurrence of a Bankruptcy Event.
(b) At any time or times following the occurrence of an Event of
Default, the Holder shall have the option to elect, by notice to the Company (an
"EVENT NOTICE"), to require the Company to repurchase all or any portion of (i)
the outstanding principal amount of this Note, at a repurchase price equal to
the greater of (A) 115% of such outstanding principal amount, plus all accrued
but unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon, and (ii) any Underlying Shares
issued to such Holder upon conversion of Notes and then owned by the Holder, at
a price per share equal to the Event Equity Value of such issuable and issued
Underlying Shares. The aggregate amount payable pursuant to the preceding
sentence is referred to as the "EVENT PRICE." The Company shall pay the Event
Price to the Holder no later than the fifth Trading Day following the date of
delivery of the Event Notice, and upon receipt thereof the Holder shall deliver
this Note and certificates evidencing any Underlying Shares so repurchased to
the Company (to the extent such certificates have been delivered to the Holder).
(c) Upon the occurrence of any Bankruptcy Event, all amounts pursuant
to SECTION 9(B) shall immediately become due and payable in full in cash,
without any further action by the Holder.
(d) In connection with any Event of Default, the Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, except as provided herein, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Any such [declaration] may be rescinded and annulled by the Holder at any time
prior to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereto.
10. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
Underlying Shares upon conversion of (or otherwise in respect of) this Note
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the registration of any certificates for Underlying Shares or Notes in a name
other than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Note or
receiving Underlying Shares in respect hereof.
11. CERTAIN ADJUSTMENTS. The Conversion Price is subject to adjustment
from time to time as set forth in this SECTION 11.
(a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time while this
Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable in shares of
Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, or (iii) combines outstanding shares of Common Stock into a
smaller number of shares, then in each such case the Conversion Price shall be
12
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
SECTION 11(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this SECTION 11(a) shall
become effective immediately after the effective date of such subdivision or
combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time while this Note
is outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED
PROPERTY"), then in each such case the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Conversion Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company (an "APPRAISER").
In such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Conversion Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Underlying Shares for which this Note
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any conversion of the Note that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Underlying Shares otherwise issuable upon such conversion (if
applicable), such Distributed Property.
(c) FUNDAMENTAL CHANGES. If, at any time while this Note is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or more transactions, (iii) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (iv) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (other than as a result of a subdivision
or combination of shares of Common Stock described in SECTION 11(a)) (in any
such case, a "FUNDAMENTAL CHANGE"), then upon any subsequent conversion of this
13
Note, the Holder shall have the right to receive, for each Underlying Share that
would have been issuable upon such conversion absent such Fundamental Change,
the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Change if it had
been, immediately prior to such Fundamental Change, the holder of one share of
Common Stock (the "ALTERNATE CONSIDERATION"). If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a
Fundamental Change, then the Holder shall be given the same choice as to the
Alternate Consideration it receives upon any conversion of this Note following
such Fundamental Change. In the event of a Fundamental Change, the Company or
the successor or purchasing Person, as the case may be, shall execute with the
Holder a written agreement providing that:
(x) this Note shall thereafter entitle the Holder to purchase
the Alternate Consideration,
(y) in the case of any such successor or purchasing Person,
upon such consolidation, merger, statutory exchange, combination, sale
or conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Note and the Purchase Agreement, and
(z) if registration or qualification is required under the
Exchange Act or applicable state law for the public resale by the
Holder of shares of stock and other securities so issuable upon
exercise of this Note, such registration or qualification shall be
completed prior to such reclassification, change, consolidation,
merger, statutory exchange, combination or sale.
If, in the case of any Fundamental Change, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may be,
in such Fundamental Change, then such written agreement shall also be executed
by such other Person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving Person in such Fundamental
Change shall issue to the Holder a new Note consistent with the foregoing
provisions and evidencing the Holder's right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Change
is effected shall include terms requiring any such successor or surviving Person
to comply with the provisions of this SECTION 11(C) and insuring that this Note
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Change. If any Fundamental
Change constitutes or results in a Change of Control, then at the request of the
Holder delivered before the 90th day after such Fundamental Change, the Company
(or any such successor or surviving entity) will purchase this Note from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black Scholes value of the remaining unexercised portion of this
Note on the date of such request.
(d) SUBSEQUENT EQUITY SALES.
14
(i) If, at any time while this Note is outstanding,
the Company or any Subsidiary issues additional shares of Common Stock
or rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") at an effective net price to the Company
per share of Common Stock (the "EFFECTIVE PRICE") less than the
Conversion Price (as adjusted hereunder to such date), then the
Conversion Price shall be reduced to equal the Effective Price. For
purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common
Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall
be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock
shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number,
and (C) no further adjustment shall be made to the Conversion Price
upon the actual issuance of Common Stock upon conversion, exercise or
exchange of such Common Stock Equivalents. The Effective Price of
Common Stock or Common Stock Equivalents issued in any transaction in
which more than one type of securities are issued shall give effect to
the allocation by the Company of the aggregate amount paid for such
securities among the different securities issued in such transaction.
(ii) If, at any time while this Note is outstanding,
the Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price or a number of underlying shares that floats or resets
or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent conversion, the Effective Price will be
determined separately on each Conversion Date and will be deemed to
equal the lowest Effective Price at which any holder of such Floating
Price Security is entitled to acquire Common Stock on such Conversion
Date (regardless of whether any such holder actually acquires any
shares on such date).
(iii) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (d) in respect of (A) the issuance of
Common Stock upon exercise or conversion of any Common Stock
Equivalents described in SCHEDULE 3.1(G) to the Purchase Agreement
(provided that such exercise or conversion occurs in accordance with
the terms thereof, without amendment or modification, and that the
applicable exercise or conversion price or ratio is described in such
schedule); (B) to officers, directors or employees of, or advisers,
consultants or independent contractors acting in a similar capacity to,
the Company pursuant to restricted stock issuances, stock grants, stock
options or similar employee stock incentives, in each case approved by
the Board of Directors of the Company; or (C) the issuance of
securities in connection with a bona fide joint venture or development
agreement or strategic partnership or similar agreement approved by the
Company's board of directors, the primary purpose of which is not to
raise equity capital.
15
(e) CALCULATIONS. All calculations under this SECTION 11 shall be made
to the nearest cent or the nearest 1/100th of a share, as applicable. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
pursuant to this SECTION 11, the Company at its expense will promptly compute
such adjustment in accordance with the terms hereof and prepare and deliver to
the Holder a certificate describing in reasonable detail such adjustment and the
transactions giving rise thereto, including all facts upon which such adjustment
is based.
(g) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a dividend
or any other distribution of cash, securities or other property in respect of
its Common Stock, including without limitation any granting of rights or
warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Change or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the
Company, then the Company shall deliver to the Holder a notice describing the
material terms and conditions of such transaction, at least 20 Trading Days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to convert this
Note prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
12. NO FRACTIONAL SHARES. The Company shall not issue or cause to be
issued fractional Underlying Shares on conversion of this Note. If any fraction
of an Underlying Share would, except for the provisions of this SECTION 12, be
issuable upon conversion of this Note, the number of Underlying Shares to be
issued will be rounded up to the nearest whole share.
13. NOTICES. Any and all notices or other communications or deliveries
hereunder (including any Conversion Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this SECTION 13 prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this SECTION 13 on a day that is not a Trading Day or later than
6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to the address set forth in the Purchase Agreement, or (ii) if to
the Holder, to the address or facsimile number appearing on the Company's
Noteholder records or such other address or facsimile number as the Holder may
provide to the Company in accordance with this SECTION 13.
16
14. MISCELLANEOUS.
(a) This Note shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. The
Company shall not be permitted to assign this Note.
(b) Subject to SECTION 14(a), nothing in this Note shall be construed
to give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or cause under this Note.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute a
part of this Note and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Note shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Note shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Note.
(f) In the event of any stock split, subdivision, dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Note to a price shall be amended to appropriately account for such event.
17
(g) No provision of this Note may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and the
Holder or, or, in the case of a waiver, by the Holder. No waiver of any default
with respect to any provision, condition or requirement of this Note shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
18
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
VASO ACTIVE PHARMACEUTICALS, INC.
By ______________________________
Name:
Title:
19
SCHEDULE 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of
Senior Secured Convertible Notes (the "Notes") into shares of common stock, no
par value (the "COMMON STOCK"), of Vaso Active Pharmaceuticals, Inc., a Delaware
corporation, according to the conditions hereof, as of the date written below.
__________________________________________________________
Date to Effect Conversion
__________________________________________________________
Principal amount of Notes owned prior to conversion
__________________________________________________________
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
__________________________________________________________
Number of shares of Common Stock to be Issued
__________________________________________________________
Applicable Conversion Price
__________________________________________________________
Principal amount of Notes owned subsequent to Conversion
__________________________________________________________
Name of Holder
By _______________________________________________________
Name:
Title:
20
SCHEDULE 2
CONVERSION SCHEDULE
-------------------
This Conversion Schedule reflects conversions of the Senior Secured Convertible Notes issued by Vaso Active
Pharmaceuticals, Inc.
------------------------------------ ----------------------------------- ----------------------------------------------
Aggregate Principal Amount Remaining
Date of Conversion Amount of Conversion Subsequent to Conversion
------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
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------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
------------------------------------ ----------------------------------- ----------------------------------------------
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21
EXHIBIT C
---------
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS AND THE COMPANY MAY, IN ACCORDANCE WITH SECTION
4.1(A) OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AUGUST 16, 2005,
AMONG THE COMPANY AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES THEREOF,
REQUIRE AN OPINION OF COUNSEL REGARDING SUCH MATTERS. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
VASO ACTIVE PHARMACEUTICALS, INC.
WARRANT
-------
Warrant No. [ ] Dated: August 16, 2005
Vaso Active Pharmaceuticals, Inc., a Delaware corporation (the
"COMPANY"), hereby certifies that, for value received, [Name of Holder] or its
registered assigns (the "HOLDER"), is entitled to purchase from the Company up
to a total of [ ] shares of common stock, $0.0001 par value per share (the
"COMMON STOCK"), of the Company (each such share, a "WARRANT SHARE" and all such
shares, the "WARRANT SHARES") at an exercise price equal to $0.77 per share (as
adjusted from time to time as provided in SECTION 9, the "EXERCISE PRICE"), at
any time and from time to time from and after the date hereof and through and
including the date that is five years from the date of issuance hereof (as such
date may be extended as provided in Section 15 the "EXPIRATION DATE"), and
subject to the following terms and conditions. This Warrant (this "WARRANT") is
one of a series of similar Warrants issued pursuant to that certain Securities
Purchase Agreement, dated as of August 16, 2005, by and among the Company and
the Purchasers identified therein (the "PURCHASE AGREEMENT"). All such Warrants
are referred to herein, collectively, as the "WARRANTS."
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.
2. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. REGISTRATION OF TRANSFERS.
(a) The Holder may assign and transfer this Warrant (or any
part thereof), provided that (i) the Holder effects such assignment in
compliance with (A) Section 4.1 of the Purchase Agreement and with (B) all
applicable laws and regulations, including laws relating to the registration of
securities under the Securities Act; and (ii) the Holder may not effect any such
assignment and transfer more than four (4) times in any twelve (12) month
period.
(b) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at its address specified herein. Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant, provided however, that there shall be no more than four such
transfers during any twelve (12) month period beginning on Closing Date as
defined in the Purchase Agreement.
4. EXERCISE AND DURATION OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder
at any time and from time to time on or after the date hereof to and including
the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date,
the portion of this Warrant not exercised prior thereto shall be and become void
and of no value; provided that, if the average of the Closing Prices for the
five Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration
Date if a "cashless exercise" may occur at such time pursuant to Section 10
below. Notwithstanding anything to the contrary herein, the Expiration Date
shall be extended for each day following them First Effective Date that the
First Registration Statement is not effective.
2
(b) A Holder may exercise this Warrant by delivering to the
Company (i) an exercise notice, in the form attached hereto (the "EXERCISE
NOTICE"), appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised (which may take the form of a "cashless exercise" if so
indicated in the Exercise Notice and if a "cashless exercise" may occur at such
time pursuant to this Section 10 below), and the date such items are delivered
to the Company (as determined in accordance with the notice provisions hereof)
is an "EXERCISE DATE." The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice shall have the same effect as cancellation of the original
Warrant and issuance of a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
5. DELIVERY OF WARRANT SHARES.
(a) Upon exercise of this Warrant, the Company shall promptly
(but in no event later than three Trading Days after the Exercise Date) issue or
cause to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
unless a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. Upon surrender
of this Warrant following one or more partial exercises, the Company shall issue
or cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
(c) In addition to any other rights available to a Holder, if
the Company fails to deliver to the Holder a certificate representing Warrant
Shares by the third Trading Day after the date on which delivery of such
certificate is required by this Warrant, and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares
that the Holder anticipated receiving from the Company (a "BUY-IN"), then the
Company shall, within three Trading Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the
Company's obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
3
(d) The Company's obligations to issue and deliver Warrant
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the
terms hereof.
6. CHARGES, TAXES AND EXPENSES. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. RESERVATION OF WARRANT SHARES(1). The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of SECTION 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
--------------
(1) The Warrant under the AIR will reflect, as appropriate, the share
reservation provisions of Section 4.5(a) of the Securities Purchase
Agreement referred to above.
4
9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this SECTION 9.
(a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock
or otherwise makes a distribution on any class of capital stock that is payable
in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, or (iii) combines outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time while
this Warrant is outstanding, distributes to holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case,
"DISTRIBUTED PROPERTY"), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution shall be adjusted (effective on such
record date) to equal the product of such Exercise Price times a fraction of
which the denominator shall be the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) such record date and of
which the numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company, (an
"APPRAISER"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Exercise Price, at the request of the Holder delivered before
the 90th day after such record date, the Company will deliver to such Holder,
within five Trading Days after such request (or, if later, on the effective date
of such distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of the Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.
5
(c) FUNDAMENTAL TRANSACTIONS. If, at any time while this
Warrant is outstanding, (i) the Company effects any merger or consolidation of
the Company with or into another Person, (ii) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(other than as a result of a subdivision or combination of shares of Common
Stock covered by Section 9(a) above) (in any such case, a "FUNDAMENTAL
TRANSACTION"), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of the number of Warrant Shares then issuable upon
exercise in full of this Warrant (the "ALTERNATE CONSIDERATION"). The aggregate
Exercise Price for this Warrant will not be affected by any such Fundamental
Transaction, but the Company shall apportion such aggregate Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. In the event of a Fundamental
Transaction, the Company or the successor or purchasing Person, as the case may
be, shall execute with the Holder a written agreement providing that:
(x) this Warrant shall thereafter entitle the Holder to
purchase the Alternate Consideration in accordance with this section
9(c),
(y) in the case of any such successor or purchasing Person,
upon such consolidation, merger, statutory exchange, combination, sale
or conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Warrant and the Purchase Agreement,
and
(z) if registration or qualification is required under the
Exchange Act or applicable state law for the public resale by the
Holder of shares of stock and other securities so issuable upon
exercise of this Warrant, such registration or qualification shall be
completed prior to such reclassification, change, consolidation,
merger, statutory exchange, combination or sale.
6
If, in the case of any Fundamental Transaction, the Alternate Consideration
includes shares of stock, other securities, other property or assets of a Person
other than the Company or any such successor or purchasing Person, as the case
may be, in such Fundamental Transaction, then such written agreement shall also
be executed by such other Person and shall contain such additional provisions to
protect the interests of the Holder as the Board of Directors of the Company
shall reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If any Fundamental Transaction
constitutes or results in a Change of Control, then at the request of the Holder
delivered before the 90th day after such Fundamental Transaction, the Company
(or any such successor or surviving entity) will purchase the Warrant from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black-Scholes value of the remaining unexercised portion of this
Warrant on the date of such request.
(d) SUBSEQUENT EQUITY SALES.
(i) If, at any time while this Warrant is
outstanding, the Company or any Subsidiary issues additional shares of
Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for shares of Common Stock or
otherwise entitling any Person to acquire shares of Common Stock
(collectively, "COMMON STOCK EQUIVALENTS") at an effective net price to
the Company per share of Common Stock (the "EFFECTIVE PRICE") less than
the Exercise Price (as adjusted hereunder to such date), then the
Exercise Price shall be reduced to equal the Effective Price. For
purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common
Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall
be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock
shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number,
and (C) no further adjustment shall be made to the Exercise Price upon
the actual issuance of Common Stock upon conversion, exercise or
exchange of such Common Stock Equivalents. The Effective Price of
Common Stock or Common Stock Equivalents issued in any transaction in
which more than one type of securities are issued shall give effect to
the allocation by the Company of the aggregate amount paid for such
securities among the different securities issued in such transaction.
7
(ii) If, at any time while this Warrant is
outstanding, the Company or any Subsidiary issues Common Stock
Equivalents with an Effective Price or a number of underlying shares
that floats or resets or otherwise varies or is subject to adjustment
based (directly or indirectly) on market prices of the Common Stock (a
"FLOATING PRICE SECURITY"), then for purposes of applying the preceding
paragraph in connection with any subsequent exercise, the Effective
Price will be determined separately on each Exercise Date and will be
deemed to equal the lowest Effective Price at which any holder of such
Floating Price Security is entitled to acquire Common Stock on such
Exercise Date (regardless of whether any such holder actually acquires
any shares on such date).
(iii) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (d) in respect of any Excluded Stock.
(e) NUMBER OF WARRANT SHARES. Simultaneously with any
adjustments to the Exercise Price pursuant to paragraphs (a), (b) or (d) of this
Section, the number of Warrant Shares that may be purchased upon exercise of
this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the increased or
decreased number of Warrant Shares shall be the same as the aggregate Exercise
Price in effect immediately prior to such adjustment.
(f) CALCULATIONS. All calculations under this SECTION 9 shall
be made to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment pursuant to this SECTION 9, the Company at its expense will promptly
compute such adjustment in accordance with the terms of this Warrant and prepare
a certificate setting forth such adjustment, including a statement of the
adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.
(h) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
8
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price
in immediately available funds; PROVIDED, HOWEVER, that if at anytime following
the Required Effectiveness Date, the Registration Statement is not effective,
the Holder may satisfy its obligation to pay the Exercise Price through a
"cashless exercise," in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is
being exercised.
A = the average of the Closing Prices
for the five Trading Days immediately
prior to (but not including) the
Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act,
it is intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.
11. LIMITATION ON EXERCISE. (a) Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be
acquired by the Holder upon any exercise of this Warrant (or otherwise in
respect hereof) shall be limited to the extent necessary to insure that,
following such exercise (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999% (the "THRESHOLD PERCENTAGE") or 9.999% (the "MAXIMUM PERCENTAGE")
of the total number of issued and outstanding shares of Common Stock (including
for such purpose the shares of Common Stock issuable upon such exercise). For
such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
9
thereunder. Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitations set forth in
this paragraph and determined that issuance of the full number of Warrant Shares
requested in such Exercise Notice is permitted under this paragraph. The
Company's obligation to issue shares of Common Stock in excess of the
limitations referred to in this Section shall be suspended (and shall not
terminate or expire notwithstanding any contrary provisions hereof) until such
time, if any, as such shares of Common Stock may be issued in compliance with
such limitation. By written notice to the Company, the Holder shall have the
right (x) at any time and from time to time to reduce its Maximum Percentage
immediately upon notice to the Company in the event and only to the extent that
Section 16 of the Exchange Act or the rules promulgated thereunder (or any
successor statute or rules) is changed to reduce the beneficial ownership
percentage threshold thereunder to a percentage less than 9.999% and (y) at any
time and from time to time, to waive the provisions of this Section insofar as
they relate to the Threshold Percentage or to increase or decrease its Threshold
Percentage (but not in excess of the Maximum Percentage) unless the Holder shall
have, by written instrument delivered to the Company, irrevocably waived its
rights to so increase or decrease its Threshold Percentage, but (i) any such
waiver, increase or decrease will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of Warrants.
(b) Notwithstanding anything to the contrary contained herein,
the maximum number of shares of Common Stock that the Company may issue pursuant
to the Transaction Documents at an effective purchase price less than the
Closing Price on the Trading Day immediately preceding the Closing Date equals
19.99% of the outstanding shares of Common Stock immediately preceding the
Closing Date (the "ISSUABLE MAXIMUM"), unless the Company obtains shareholder
approval in accordance with the rules and regulations of the applicable Trading
Market. If, at the time any Holder requests an exercise of any of the Warrants,
the Actual Minimum (excluding any shares issued or issuable at an effective
purchase price in excess of the Closing Price on the Trading Day immediately
preceding the Closing Date) exceeds the Issuable Maximum (and if the Company has
not previously obtained the required shareholder approval), then the Company
shall issue to the Holder requesting such exercise a number of shares of Common
Stock not exceeding such Holder's pro-rata portion of the Issuable Maximum
(based on such Holder's share (vis-a-vis other Holders) of the aggregate
purchase price paid under the Purchase Agreement and taking into account any
Warrant Shares previously issued to such Holder). For the purposes hereof,
"ACTUAL MINIMUM" shall mean, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise in full of all Warrants, without giving effect to (x) any limits
on the number of shares of Common Stock that may be owned by a Holder at any one
time, or (y) any additional Underlying Shares that could be issuable as a result
of any future possible adjustments made under Section 9(d).
10
12. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant. If
any fraction of a Warrant Share would, except for the provisions of this
Section, be issuable upon exercise of this Warrant, the number of Warrant Shares
to be issued will be rounded up to the nearest whole share.
13. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices or communications shall be as
set forth in the Purchase Agreement.
14. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
15. EXTENSION OF EXPIRATION DATE. At the option of the Holder, the
Expiration Date may be extended for the number of Trading Days during any period
occurring after the Required Effectiveness Date in which (i) trading in the
Common Stock is suspended by any Trading Market, (ii) the Registration Statement
is not effective, or (iii) the prospectus included in the Registration Statement
may not be used by the Holders for the resale of Registrable Securities
thereunder.
16. MISCELLANEOUS.
(a) Subject to the restrictions on transfer set forth on the
first page hereof, this Warrant may be assigned by the Holder. This Warrant may
not be assigned by the Company except to a successor in the event of a
Fundamental Transaction. This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Warrant shall be construed to
give to any Person other than the Company and the Holder any legal or equitable
right, remedy or cause of action under this Warrant. This Warrant may be amended
only in writing signed by the Company and the Holder and their successors and
assigns.
11
(b) The Company will not, by amendment of its governing
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any Warrant Shares above the amount payable therefor
on such exercise, (ii) will take all such action as may be reasonably necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its stockholder books or records in any manner which interferes
with the timely exercise of this Warrant.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF. EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS
CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS
CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A
PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, SHAREHOLDERS,
EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN. EACH PARTY HERETO
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THIS WARRANT ), AND HEREBY IRREVOCABLY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION
OR PROCEEDING IS IMPROPER. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. IF EITHER PARTY SHALL COMMENCE AN ACTION OR
PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS WARRANT OR ANY TRANSACTION
DOCUMENT, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE
REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER
REASONABLE COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND
PROSECUTION OF SUCH ACTION OR PROCEEDING.
12
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
13
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
VASO ACTIVE PHARMACEUTICALS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
14
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: VASO ACTIVE PHARMACEUTICALS, INC.
The undersigned is the Holder of Warrant No. _______ (the "WARRANT") issued by
Vaso Active Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY").
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made as
(check one):
____ "Cash Exercise" under Section 10
____ "Cashless Exercise" under Section 10
(if permitted)
4. If the holder has elected a Cash Exercise, the holder shall pay the sum
of $____________ to the Company in accordance with the terms of the
Warrant.
5. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
6. Following this exercise, the Warrant shall be exercisable to purchase a
total of ______________ Warrant Shares.
Dated: _______________, _____ Name of Holder:
(Print)________________________
By:____________________________
Name:__________________________
Title:_________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Vaso Active
Pharmaceuticals, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Vaso Active
Pharmaceuticals, Inc. with full power of substitution in the premises.
Dated: __________________ , ___
____________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
____________________________________________
Address of Transferee
____________________________________________
____________________________________________
In the presence of:
__________________________
EXHIBIT D
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of August 16, 2005 (the "AGREEMENT"),
is by and between Vaso Active Pharmaceuticals, Inc., a corporation duly
organized and validly existing under the laws of the State of Delaware (the
"PLEDGOR"), and Iroquois Master Fund, Ltd., as agent (in such capacity, together
with its successors in such capacity, the "AGENT") for the equal and ratable
benefit of the Purchasers (as each such term is defined in the Purchase
Agreement).
W I T N E S S E T H:
--------------------
WHEREAS, the Pledgor and each of the Purchasers are parties to a
Securities Purchase Agreement dated as of August 16, 2005 (as modified and
supplemented and in effect from time to time, the "PURCHASE Agreement"), that
provides, subject to the terms and conditions thereof, for the issuance and sale
by the Company to the Purchasers, severally and not jointly, Notes, Warrants and
Additional Investment Rights as more fully described in the Purchase Agreement.
WHEREAS, the Pledgor will derive substantial benefit from the purchase
of the Notes, Warrants and Additional Investment Rights by the Purchasers under
the Purchase Agreement;
WHEREAS, the Pledgor owns certain issued and outstanding shares of the
capital stock of the entities listed on ANNEX 1 hereto;
WHEREAS, it is a condition precedent to the obligations of each of the
Purchasers under the Purchase Agreement that the Pledgor shall have granted the
assignment and security interests contemplated by this Agreement and the
Security Agreement dated as of August 16, 2005 by and between the Pledgor and
the Purchasers identified on the signature pages thereto, and the Purchasers are
relying on the undertakings of the Pledgor contained herein and therein;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Purchasers to enter into the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby agrees with the Agent for the equal and ratable
benefit of each of the Purchasers as follows:
SECTION 1 DEFINITIONS.
-----------
(a) Each capitalized term used herein and not otherwise
defined shall have the meaning assigned to such term in the Security Agreement.
Unless otherwise stated, any reference in this Agreement to any Person shall
include its permitted successors and assigns and any Person succeeding to its
functions and capacities.
2
(b) As used in this Agreement, the following terms shall have
the following respective meanings (all terms defined in this Section 1(b) or in
the other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"PLEDGED COLLATERAL" shall have the meaning assigned to such
term in Section 2 hereof.
"PLEDGED STOCK" shall have the meaning assigned to such term
in Section 2(a) hereof.
"STOCK COLLATERAL" shall have the meaning assigned to such
term in Section 2(c) hereof.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York.
SECTION 2 ASSIGNMENT. As security for the payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the Secured Obligations, now existing or hereafter arising, the Pledgor
hereby pledges, assigns, hypothecates and transfers to the Agent for the equal
and ratable benefit of each of the Purchasers and hereby grants to the Agent for
the equal and ratable benefit of each of the Purchasers a Lien on and security
interest in, all of the Pledgor's right, title and interest in, to and under the
following, whether now or hereafter existing, whether now owned or hereafter
acquired, and wherever located (collectively the "PLEDGED COLLATERAL"):
(a) the shares of capital stock of the entities identified in
ANNEX 1 hereto and all other shares of capital stock of whatever class of such
entities, now or hereafter owned by the Pledgor, together with in each case the
certificates evidencing the same (collectively, the "PLEDGED STOCK");
(b) all shares, securities, money or property representing a
dividend on any of the Pledged Stock, or representing a distribution or return
of capital upon or with respect to the Pledged Stock or resulting from a
split-up, revision, reclassification or other like change of the Pledged Stock
or otherwise received in exchange therefor, and any subscription warrants,
rights or options issued to the holders of, or otherwise in respect of, the
Pledged Stock;
(c) without affecting the obligations of the Pledgor, in the
event of any consolidation or merger in which one of the entities listed on
ANNEX 1 is not the surviving corporation, all shares owned by the Pledgor of
each class of the capital stock of the successor corporation formed by or
resulting from such consolidation or merger (the Pledged Stock, together with
all other certificates, shares, securities, warrants, rights, options,
properties or moneys as may from time to time be pledged hereunder pursuant to
clause (a) or (b) above and this clause (c) being herein collectively called the
"STOCK COLLATERAL"); and
(d) to the extent not included in the foregoing, all proceeds,
products, offspring, rents, revenues, issues, profits, royalties, income,
benefits, accessions, additions, substitutions and replacements of and to any
and all of the foregoing.
3
SECTION 3 SECURITY FOR SECURED OBLIGATIONS. This Agreement and
the Security Agreement secure the payment and performance by the Pledgor of all
of the Secured Obligations now existing or hereafter arising.
SECTION 4 DUTIES OF THE AGENT; PLEDGOR REMAINS LIABLE.
-------------------------------------------
(a) The rights conferred on the Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such rights. The Agent shall have no duty as to any
Pledged Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Pledged Collateral.
The Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Agent deals
with similar securities and property for its own account. None of the Agent, any
of the Purchasers or any of their directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon any of the Pledged
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Pledged Collateral upon the request of the Pledgor
or otherwise. The Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and neither it nor any of
its officers, directors, employees or agents shall be responsible to the Pledgor
or any other Person for any act or failure to act, other than with respect to
gross negligence or willful misconduct of the Agent.
(b) Anything herein to the contrary notwithstanding, the
Pledgor shall remain liable to perform all of its duties and obligations in
respect of the Pledged Collateral to the same extent as if this Agreement had
not been executed. The exercise by the Agent of any of its rights and remedies
hereunder shall not release the Pledgor from any of its duties or obligations in
respect of the Pledged Collateral. Neither the Agent nor any of the Purchasers
shall have any obligation in respect of the Pledged Collateral by reason of this
Agreement, or be obligated to perform any of the obligations or duties of the
Pledgor in respect of the Pledged Collateral or to take any action to collect or
enforce any claim for payment or any other right assigned hereunder.
SECTION 5 REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants as follows:
(a) The chief place of business and chief executive office of
the Pledgor and the office where the Pledgor keeps its records concerning the
Collateral (herein collectively called the "RECORDS") is located at 00 Xxxxxxxx
Xxxxx, Xxxxx 000, Xxxxxxx, XX 00000.
(b) The Pledgor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified to do business and is in good standing in all other places where
necessary in light of the business and properties it conducts and owns and has
the full power, authority and legal right to execute, deliver and perform its
obligations under this Agreement.
(c) The execution, delivery and performance by the Pledgor of
this Agreement have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of the board of
directors or of any shareholder of Pledgor or of any other Person that has not
been duly obtained, (ii) violate any provision of the certificate of
4
incorporation or the by-laws of the Pledgor or any governmental rule, statute,
law, code, ordinance or approval applicable to the Pledgor, (iii) except as set
forth in Annex 2 result in a breach of or constitute a default under any
indenture or loan or credit agreement or other material agreement, lease or
instrument to which the Pledgor is a party or by which its properties may be
bound or affected, or (iv) result in, or require, the creation or imposition of
any Lien (other than the pledge provided for herein), upon or with respect to
any of the property now owned or hereafter acquired by the Pledgor; and the
Pledgor is not in violation of any material governmental rule, statute, law,
code, ordinance or approval or in breach of or default under any indenture, loan
or credit agreement or other material agreement, lease or instrument referred to
in clause (iii) hereof.
(d) This Agreement has been duly authorized, executed and
delivered by the Pledgor, is in full force and effect and is the legal, valid
and binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with the terms hereof, except as the enforceability hereof may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors rights generally and subject to any
equitable principles limiting the right to obtain specific performance of such
obligation.
(e) This Agreement creates in favor of the Agent, for the
equal and ratable benefit of each of the Purchasers, a valid and, upon transfer
of the Pledged Stock to the Agent, enforceable Lien in and on the Pledged
Collateral, subject to no Liens other than Permitted Liens, securing the payment
and performance of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such Lien and the priority
thereof, including the transfer of such Pledged Stock to the Agent, have been
duly made or taken.
(f) No government approval by, and no filing with, any Person
is required either (i) for the grant by the Pledgor of the Liens granted hereby
or for the execution, delivery or performance of this Agreement by the Pledgor
or (ii) for the perfection (except as has been duly taken) of the Liens created
hereby or the exercise by the Agent of the rights and remedies hereunder.
(g) The Pledgor is lawfully possessed of ownership of and has
good and marketable title to the Pledged Collateral, subject to no Liens other
than Permitted Liens (and, with respect to the Stock Collateral, no right or
option to acquire the same exists in favor of any other Person), and has full
power and lawful authority to grant the Liens in and on the Pledged Collateral
hereunder.
(h) The Pledged Stock of the Issuers identified in ANNEX 1
hereto is, and all other Pledged Stock will be, duly authorized, validly issued,
fully paid and nonassessable, and none of such Pledged Stock is or will be
subject to any contractual restriction, or any restriction under the charter or
by-laws of the entity that issued such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained herein).
5
(i) The Pledged Stock of the Issuers identified in ANNEX 1
hereto constitutes all of the issued and outstanding shares of capital stock of
any class of the entity that issued such Pledged Stock beneficially owned
(directly or indirectly) by the Pledgor on the date hereof.
(j) There is no action, suit or proceeding at law or in equity
or by or before any Person, arbitral tribunal or other body now pending or, to
the knowledge of Pledgor, threatened against or affecting the Pledgor or any of
its properties, rights or assets or the Pledged Collateral.
(k) No effective financing statement or other instrument
similar in effect covering all or any part of the Pledged Collateral is on file
in any recording office, except as may have been filed with respect to Permitted
Liens or pursuant to this Agreement.
(l) The Pledgor is not (i) an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended or (ii) a "holding company," or any
"affiliate" of a "holding company" or a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 6 FURTHER ASSURANCES.
(a) The Pledgor shall, if any of the above-described shares,
securities, warrants, rights or options required to be pledged by the Pledgor
under Section 2 hereof are received by the Pledgor, forthwith either (i)
transfer and deliver to the Agent such shares or securities so received by the
Pledgor (together with the certificates for any such shares and securities duly
endorsed in blank or accompanied by undated stock powers duly executed in
blank), all of which thereafter shall be held by the Agent, pursuant to the
terms of this Agreement, as part of the Pledged Collateral, and/or (ii) take
such other action as the Agent shall reasonably deem necessary or desirable to
create, preserve, validate, perfect or protect the Liens created hereunder in
such shares, securities, rights, warrants and options.
(b) The Pledgor agrees that from time to time, at the expense
of the Pledgor, the Pledgor shall promptly execute and deliver all further
instruments and documents, furnish opinions of counsel for the Pledgor, and take
all further action, that may be necessary, or that the Agent may reasonably
request, in order to create, preserve, validate, perfect or protect the Liens
granted or purported to be granted hereby or the priority thereof or to enable
the Agent to exercise and enforce its rights and remedies hereunder. Without
limiting the generality of the foregoing, the Pledgor will: (i) if any Pledged
Collateral shall be evidenced by a promissory note or other instrument, deliver
and pledge to the Agent for the benefit of each of the Purchasers such note or
instrument duly indorsed or accompanied by duly executed instruments of transfer
or assignment, all in form and substance satisfactory to the Agent; and (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments, endorsements or notices, as may be
necessary or as the Agent may reasonably request, in order to create, preserve,
validate, perfect or protect the Liens granted or purported to be granted
hereby, including, without limitation, causing any or all of the Stock
Collateral to be transferred of record into the name of the Agent or its nominee
(and the Agent agrees that if any Stock Collateral is transferred into its name
or the name of its nominee, the Agent will thereafter promptly give to the
Pledgor copies of any notices and communications received by it with respect to
the Stock Collateral).
6
(c) The Pledgor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Pledged Collateral without the signature of the Pledgor
where permitted by law.
(d) The Pledgor shall pay all filing, registration and
recording fees or re-filing, re-registration and re-recording fees, and all
reasonable expenses incident to the execution and acknowledgment of this
Agreement, any agreement supplemental hereto and any instruments of further
assurance, and all federal, state, county and municipal stamp taxes and other
taxes, duties, imports, assessments and charges arising out of or in connection
with the execution and delivery of this Agreement, any agreement supplemental
hereto and any instruments of further assurance.
(e) The Pledgor will warrant and defend its title to the
Pledged Collateral against the claims and demands of all Persons (other than the
Purchasers) whomsoever.
(f) The Pledgor shall hold and preserve all records and permit
representatives of the Agent, upon reasonable notice, at any time during normal
business hours to inspect and make abstracts from the records, and permit
representatives of the Agent to be present at the Pledgor's place of business to
receive copies of all communications and remittances relating to the Pledged
Collateral, and forward copies of any notices or communications received by the
Pledgor with respect to the Pledged Collateral, all in such manner as the Agent
may require.
SECTION 7 PLACE OF PERFECTION; RECORDS. The Pledgor shall give
the Agent at least 30 days' prior written notice before it changes its corporate
name, or the name under which it does business, or the location of its chief
executive office or the office where the Pledgor keeps its records and shall at
the expense of the Pledgor execute and deliver such instruments and documents as
required to maintain a prior perfected security interest in the Pledged
Collateral and as requested by the Agent. The Pledgor shall not, without such
prior written notice to the Agent, change its corporate name, or the name under
which it does business, from the name shown on the signature pages hereto.
SECTION 8 COVENANTS OF THE PLEDGOR. The Pledgor covenants and
agrees that, until the security interest granted hereby is terminated in
accordance with Section 15 hereof:
(a) The Pledgor shall use its reasonable best efforts to
preserve and maintain its corporate existence and all of its rights, privileges
and franchises that are necessary for the fulfillment of its obligations under
this Agreement.
(b) The Pledgor shall pay, before any fine, penalty, interest
or cost attaches thereto, all taxes, assessments and other governmental or
non-governmental charges or levies now or hereafter assessed or levied against
the Pledged Collateral or upon the Liens provided for herein (except for Liens
for taxes and assessments not then delinquent and those being properly contested
in good faith) as well as pay, or cause to be paid, all claims for labor,
materials or supplies which, if unpaid, might become a Lien thereon, and will
retain copies of, and, upon request, permit the Agent to examine, receipts
showing payment of any of the foregoing.
7
(c) The Pledgor shall not create, incur, assume or suffer to
exist any Lien upon any of the Pledged Collateral other than Permitted Liens.
SECTION 9 AGENT APPOINTED ATTORNEY-IN-FACT. Upon the
occurrence and during the continuation of an Event of Default, the Pledgor
hereby irrevocably appoints the Agent as the Pledgor's attorney-in-fact (which
appointment as attorney-in-fact shall be coupled with an interest), with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion to take any action and
to execute any instrument that the Agent may deem to be necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation, to
ask, demand, collect, xxx for, recover, compound, receive and give acquittance
and receipts for moneys due and to become due under or in connection with the
Pledged Collateral, to receive, indorse and collect any drafts or other
instruments, documents and chattel paper in connection therewith, and to file
any claims or take any action or institute any proceedings that the Agent may
deem necessary or desirable for the collection thereof or to enforce compliance
with the terms and conditions of this Agreement. Notwithstanding the foregoing,
the Agent shall not be obligated to exercise any right or duty as
attorney-in-fact, and shall have no duties to the Pledgor in connection
therewith.
SECTION 10 AGENT MAY PERFORM. If the Pledgor fails to perform
any agreement contained herein, upon reasonable notice to the Pledgor, the Agent
may itself perform or cause performance of this Agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by the Pledgor.
SECTION 11 RIGHTS AND REMEDIES.
(a) If any Event of Default shall have occurred and be
continuing, all payments thereafter received by the Pledgor under or in
connection with the Pledged Collateral shall be received in trust for the
benefit of the Agent, shall be segregated from other funds of the Pledgor and
shall be forthwith paid over to the Agent in the same form as so received (with
any necessary endorsement).
(b) If an Event of Default shall have occurred and be
continuing, (i) the Agent shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Stock Collateral, and
(ii) all payments thereafter made to the Pledgor in respect of the Pledged
Collateral and received by the Agent in accordance with the provisions of this
Agreement or otherwise, and all proceeds of the Pledged Collateral received by
the Agent pursuant to paragraph (c) below, may (x) be held by the Agent as
collateral for the Secured Obligations and/or (y) then or at anytime thereafter
during the continuance of such Event of Default, be applied thereto in
accordance with the provisions of Section 4.09 of the Security Agreement.
(c) If (i) an Event of Default shall have occurred and be
continuing and (ii) any of the Secured Obligations shall have been declared to
be, or shall have become, due and payable then, in addition to any other rights
and remedies provided for herein or which may otherwise be available, the Agent
may, without any further demand, advertisement or notice (except as expressly
provided for below in this Section 11(c)), exercise all the rights and remedies
of a secured party under the UCC (whether or not the UCC applies to the affected
Pledged Collateral), and in addition, (x) may apply the moneys, if any, then
8
held by it as part of the Pledged Collateral, for the purposes and in the order
provided in Section 4.09 of the Security Agreement and (y) if there shall be no
such moneys or the moneys so applied shall be insufficient to satisfy in full
all Secured Obligations, may sell the Pledged Collateral, or any part thereof,
as hereinafter provided in this Section 11(c) and otherwise to the fullest
extent permitted by law. The Pledged Collateral may be sold in one or more
sales, at public or private sale, conducted by any officer or agent of, or
auctioneer or attorney for, the Agent, at the Agent's place of business or
elsewhere, for cash, upon credit or for other property, for immediate or future
delivery, and at such price or prices and on such terms as the Agent shall deem
appropriate. Any of the Purchasers may be a purchaser of any or all of the
Pledged Collateral so sold at a public sale and, to the extent permitted by law,
at a private sale, and thereafter hold the same, absolutely, free from any right
or claim of whatsoever kind, and, the obligations of the Pledgor to such
purchaser may be applied as a credit against the purchase price. The Agent may,
in its sole discretion, at any such sale restrict the prospective bidders or
purchasers as to their number, nature of business and investment intention. Upon
any public or private sale the Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Pledged Collateral so sold. Each purchaser
(including the Agent or any of the other Purchasers) at any such sale shall hold
the Pledged Collateral so sold, absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption, of the Pledgor,
and the Pledgor hereby specifically waives, to the full extent it may lawfully
do so, all rights of redemption, stay or appraisal that it has or may have under
any rule of law or statute now existing or hereafter adopted. The Agent shall
give the Pledgor at least ten days' notice (which the Pledgor agrees is
reasonable notification within the meaning of Section 9-504(3) of the UCC) of
any such public or private sale. Such notice shall state the time and place
fixed for such sale. Any sale shall be held at such time or times within
ordinary business hours as the Agent shall fix in the notice of such sale. At
any such sale the Pledged Collateral may be sold in one lot as an entirety or in
separate parcels. The Agent shall not be obligated to make any sale pursuant to
any such notice. The Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for such sale, and any such sale may be
made at any time or place to which the same may be so adjourned without further
notice or publication. In case of any sale of all or any part of the Pledged
Collateral on credit or for future delivery, the Pledged Collateral so sold may
be retained by the Agent until the full selling price is paid by the purchaser
thereof, but neither the Agent nor any of the other Purchasers shall incur any
liability in case of the failure of such purchaser to take up and pay for the
Pledged Collateral so sold, and, in case of any such failure, such Pledged
Collateral may again be sold pursuant to the provisions hereof. All cash
proceeds of any such sale, and any other realization upon all or any part of the
Pledged Collateral, shall be held or applied by the Agent in the manner provided
in Section 4.09 of the Security Agreement.
(d) Instead of exercising the power of sale provided in
Section 11(c) hereof, the Agent may proceed by a suit or suits at law or in
equity to foreclose the Lien under this Agreement and sell the Pledged
Collateral or any portion thereof under a judgment or decree of a court or
courts of competent jurisdiction.
(e) The Agent as attorney-in-fact pursuant to Section 9 hereof
may, in the name and stead of the Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Collateral sold pursuant to Section
11(c) or Section 11(d) hereof, and the Pledgor hereby ratifies and confirms all
9
that the Agent, as said attorney-in-fact, shall do by virtue hereof.
Nevertheless, the Pledgor shall, if so requested by the Agent, ratify and
confirm any sale or sales by executing and delivering to the Agent, or to such
purchaser or purchasers, all such instruments as may, in the reasonable judgment
of the Agent, be advisable for the purpose.
(f) The receipt by the Agent of the purchase money paid at any
sale made by it shall be a sufficient discharge therefor to any purchaser of the
Pledged Collateral, or any portion thereof, sold as aforesaid; and no such
purchaser (or the representatives or assigns of such purchaser), after paying
such purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or in any manner
whatsoever be answerable for any loss, misapplication or nonapplication of any
such purchase money, or any part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(g) The Agent shall incur no liability as a result of the sale
of the Pledged Collateral, or any part thereof, at any private sale conducted in
a commercially reasonable manner in accordance with the terms of this Agreement
and applicable law. The Pledgor hereby waives, to the full extent permitted by
applicable law, any claims against any of the Purchasers arising by reason of
the fact that the price at which the Pledged Collateral, or any part thereof,
may have been sold at a private sale to an unrelated third party in an arm's
length transaction was less than the price that might have been obtained at a
public sale or was less than the aggregate amount of the Secured obligations,
even if the Agent accepts the first offer received which the Agent in good xxxxx
xxxxx to be commercially reasonable under the circumstances and does not offer
the Pledged Collateral to more than one offeree. To the fullest extent permitted
by law, the Pledgor shall have the burden of proving that any such sale of the
Pledged Collateral was conducted in a commercially unreasonable manner.
(h) It is the express understanding and intent of the parties
that, as to any personal property interests subject to Article 9 of the UCC, the
Agent, upon the occurrence of an Event of Default, may proceed under the UCC or
may proceed as to both real and personal property interests in accordance with
the provisions of any mortgages and treat both real and personal property
interests as one parcel or package of security.
(i) Each and every right and remedy of the Agent shall, to the
extent permitted by law, be cumulative and shall be in addition to any other
remedy given hereunder or under the Security Agreement or Purchase Agreement or
now or hereafter existing at law or in equity or by statute.
(j) If the proceeds of any sale, collection, liquidation or
other realization of or upon the Pledged Collateral are not sufficient to cover
the costs and expenses of such realization and the payment in full of the
Secured Obligations, the Agent or any other of the Purchasers shall have the
right to proceed against the Pledgor for any such deficiency. Furthermore, if
the proceeds of the any sale exceed the costs and expenses of the realization
and the payment in full of the Secured Obligations, the balance of the proceeds
from such sale shall be paid over to the Pledgor, as promptly thereafter as
practicable.
10
(k) The Pledgor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and applicable
state securities laws, the Agent may be compelled, with respect to any sale of
all or any part of the Pledged Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Pledged Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges that any such private sale to an unrelated
third party in an arm's length transaction may be at prices and on terms less
favorable to the Agent than those obtainable through a public sale without such
restrictions, provided that any such private sale shall be conducted in a
commercially reasonable manner. Notwithstanding anything in this paragraph (k)
to the contrary, the Agent shall have no obligation to engage in public sales
and no obligation to delay the sale of any Pledged Collateral for the period of
time necessary to register it for public sale.
SECTION 12 AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Pledgor or the
Agent herefrom shall in any event be effective unless the same shall be in
writing and signed by the Agent and the Pledgor, and then such waiver or consent
shall be effective only in the specific instance and for the specified purpose
for which given.
SECTION 13 ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing (including telecopy or
telex communication) and shall be mailed, telecopied, telexed or delivered to
the Pledgor or to the Agent addressed to either party at its applicable address
specified in the Security Agreement, or as to either party at such other address
as shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section 13. All such notices and
other communications shall, when mailed, telecopied or telexed, respectively, be
effective when deposited in the mails, telecopied or telexed, respectively,
addressed as aforesaid.
SECTION 14 CONTINUING ASSIGNMENT AND SECURITY INTEREST;
TRANSFER OF NOTES. This Agreement shall create a continuing assignment of and
security interest in the Pledged Collateral and shall (a) remain in full force
and effect until the security interest granted hereby is terminated in
accordance with the third sentence of this Section 14, (b) be binding upon the
Pledgor, its successors and assigns, and (c) inure, together with the rights and
remedies of the Agent hereunder, to the benefit of the Agent and each of the
other Purchasers and their respective successors, transferees and permitted
assigns. Without limiting the generality of the foregoing clause (c), subject to
Section 4.1 of the Purchase Agreement, any Purchaser may assign or otherwise
transfer any Note or other evidence of indebtedness held by it to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Purchaser, herein or otherwise. Upon
expiration of 90 days after the payment in full of all of the Secured
Obligations (other than contingent obligations for which no claim has been
made), and provided that, in respect of the Pledgor, during such 90-day period
no Event of Default specified in clause (f) or (g) of Section 10 of the Notes
and no event which, with the giving of notice or lapse of time or both, would
become such an Event of Default, the security interest granted hereby shall
11
terminate, and all rights to the Pledged Collateral shall revert to the Pledgor
and the Agent shall return any of the Pledged Collateral in its possession to
the Pledgor. Upon any such termination, the Agent will, at the Pledgor's
expense, execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence such termination.
SECTION 15 SECURITY-INTEREST ABSOLUTE. The rights and remedies
of the Agent hereunder, the Liens created hereby and the obligations of the
Pledgor hereunder are absolute, irrevocable and unconditional, irrespective of:
(a) the validity or enforceability of any of the Secured
Obligations or any other agreement or instrument relating thereto;
(b) any amendment to, waiver of, consent to or departure from,
or failure to exercise any right, remedy, power or privileges under or in
respect of any of the Secured Obligations or any other agreement or instrument
relating thereto;
(c) the acceleration of the maturity of any of the Secured
Obligations or any other modification of the time of payment thereof;
(d) any substitution, release or exchange of any other
security for or guarantee of any of the Secured Obligations or the failure to
create, preserve, validate, perfect or protect any other Lien granted or
purported to be granted to, or in favor of, the Agent or any of the other
Purchasers; or
(e) any other event or circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or a
guarantor, it being the intent of this Section 16 that the obligations of the
Pledgor hereunder shall be absolute, irrevocable and unconditional under any and
all circumstances.
SECTION 16 SUBROGATION. The Pledgor shall not exercise, and
hereby irrevocably waives, any rights that it may acquire by way of subrogation
under or in connection with this Agreement. If any amount shall be paid to the
Pledgor on account of such subrogation rights at any time, such amount shall be
held in trust for the benefit of the Agent and shall forthwith be paid to the
Agent to be credited and applied against the satisfaction of the Secured
Obligations.
SECTION 17 REINSTATEMENT. This Agreement and the Lien created
hereunder shall automatically be reinstated if and to the extent that for any
reason any payment by or on behalf of the Pledgor in respect of the Secured
Obligations is rescinded or must otherwise be restored by any holder of the
Secured Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and the Pledgor shall indemnify the Agent and each
of the other Purchasers on demand for all reasonable costs and expenses
(including, without limitation, fees of counsel) incurred by the Agent or any of
the other Purchasers in connection with such rescission or restoration.
SECTION 18 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT
THE VALIDITY OF PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
12
HEREUNDER, ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW
YORK. UNLESS OTHERWISE DEFINED IN SECTION 1 HEREOF, TERMS USED IN ARTICLE 9 OF
THE UCC ARE USED HEREIN AS THEREIN DEFINED.
SECTION 19 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
EACH OF THE PLEDGOR AND THE AGENT HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PLEDGOR AND THE AGENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PLEDGOR AND THE
AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 20 HEADINGS. Headings used in this Agreement are for
convenience of reference only and do not constitute part of this Agreement for
any purpose.
SECTION 21 EXPENSES. The Pledgor agrees to pay or reimburse
all out-of-pocket expenses of the Agent (including, without limitation, fees of
counsel) in respect of, or incident to, the enforcement of any of the provisions
of this Agreement or in connection with any amendment, waiver or consent
relating thereto.
SECTION 22 NO THIRD PARTY BENEFICIARIES. The agreements of the
parties hereto are solely for the benefit of the Pledgor, and the Agent on
behalf of each of the Purchasers, and no Person (other than the parties hereto
and each of the Purchasers) shall have any rights hereunder.
SECTION 23 SEVERABILITY. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Agent and the
Secured Parties in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of any provision in any other jurisdiction.
SECTION 24 NO WAIVER. No failure on the part of the Agent or
any of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Agent or any of
its agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
13
SECTION 25 AGENTS. Each Purchaser agrees to appoint Iroquois
Master Fund, Ltd. as its Agent for purposes of this Agreement. The Agent may
employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
SECTION 26 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which, taken together, shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
14
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
PLEDGOR: VASO ACTIVE PHARMACEUTICALS, INC.
By: ______________________________
Name:
Title:
AGENT: IROQUOIS MASTER FUND, LTD.
By: ______________________________
Name:
Title:
15
PURCHASERS: IROQUOIS MASTER FUND, LTD.
By: ______________________________
Name:
Title:
16
PURCHASERS: __________________________________
By: ______________________________
Name:
Title:
17
ANNEX 1
ENTITIES IN WHICH THE COMPANY IS PLEDGING ITS CAPITAL STOCK
Approximate
ENTITY PERCENTAGE INTEREST
------ -------------------
EXHIBIT E
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of August 16, 2005 (the "AGREEMENT")
is by and among Vaso Active Pharmaceuticals, Inc., a corporation duly organized
and validly existing under the laws of the State of Delaware (the "COMPANY"),
the Purchasers identified on the signature pages hereto (each, a "PURCHASER" and
collectively, the "PURCHASERS") and Iroquois Master Fund, L.P., as agent for the
Purchasers (in such capacity, together with its successors in such capacity, the
"AGENT").
The Company and each of the Purchasers are parties to a Securities
Purchase Agreement dated as of August 16, 2005 (as modified and supplemented and
in effect from time to time, the "PURCHASE AGREEMENT"), that provides, subject
to the terms and conditions thereof, for the issuance and sale by the Company to
each of the Purchasers, severally and not jointly, Notes, Warrants and
Additional Investment Rights as more fully described in the Purchase Agreement.
To induce each of the Purchasers to enter into the Purchase Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company has agreed to pledge and grant a
security interest in the Collateral (as hereinafter defined) as security for the
Secured Obligations (as hereinafter defined). Accordingly, the parties hereto
agree as follows:
Section 1. DEFINITIONS. Each capitalized term used herein and not
otherwise defined shall have the meaning assigned to such term in the Purchase
Agreement. In addition, as used herein:
"ACCOUNTS" shall have the meaning ascribed thereto in Section 3(d)
hereof.
"BUSINESS" shall mean the businesses from time to time, now or
hereafter, conducted by the Company and its Subsidiaries.
"COLLATERAL" shall have the meaning ascribed thereto in
Section 3 hereof.
"COPYRIGHT COLLATERAL" shall mean all Copyrights, whether now owned or
hereafter acquired by the Company, that are associated with the Business.
"COPYRIGHTS" shall mean all copyrights, copyright registrations and
applications for copyright registrations, including, without limitation, all
renewals and extensions thereof, the right to recover for all past, present and
future infringements thereof, and all other rights of any kind whatsoever
accruing thereunder or pertaining thereto.
"DOCUMENTS" shall have the meaning ascribed thereto in Section 3(j)
hereof.
"EQUIPMENT" shall have the meaning ascribed thereto in Section 3(h)
hereof.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in Section 8
of the Notes.
"EXCLUDED COLLATERAL" shall mean the assets listed on ANNEX 2 hereto.
"INSTRUMENTS" shall have the meaning ascribed thereto in Section 3(e)
hereof.
"INTELLECTUAL PROPERTY" shall mean, collectively, all Copyright
Collateral, all Patent Collateral and all Trademark Collateral, together with
(a) all inventions, processes, production methods, proprietary information,
know-how and trade secrets used or useful in the Business; (b) all licenses or
user or other agreements granted to the Company with respect to any of the
foregoing, in each case whether now or hereafter owned or used including,
without limitation, the licenses or other agreements with respect to the
Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, manuals,
materials standards, processing standards, catalogs, computer and automatic
machinery software and programs, and the like pertaining to the operation by the
Company of the Business; (d) all sales data and other information relating to
sales now or hereafter collected and/or maintained by the Company that pertain
to the Business; (e) all accounting information which pertains to the Business
and all media in which or on which any of the information or knowledge or data
or records which pertain to the Business may be recorded or stored and all
computer programs used for the compilation or printout of such information,
knowledge, records or data; (f) all licenses, consents, permits, variances,
certifications and approvals of governmental agencies now or hereafter held by
the Company pertaining to the operation by the Company and its Subsidiaries of
the Business; and (g) all causes of action, claims and warranties now or
hereafter owned or acquired by the Company in respect of any of the items listed
above.
"INVENTORY" shall have the meaning ascribed thereto in Section 3(f)
hereof.
"ISSUERS" shall mean, collectively, the respective entities identified
on ANNEX 1 hereto, and all other entities formed by the Company or entities in
which the Company owns or acquires any capital stock or similar interest.
"LIEN" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Uniform
Commercial Code or comparable law of any jurisdiction).
"MOTOR VEHICLES" shall mean motor vehicles, tractors, trailers and
other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"PATENT COLLATERAL" shall mean all Patents, whether now owned or
hereafter acquired by the Company that are associated with the Business.
2
"PATENTS" shall mean all patents and patent applications, including,
without limitation, the inventions and improvements described and claimed
therein together with the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, all income, royalties, damages and
payments now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past or future
infringements thereof, the right to xxx for past, present and future
infringements thereof, and all rights corresponding thereto throughout the
world.
"PERMITTED INDEBTEDNESS" shall mean the Company's indebtedness,
liabilities and obligations existing on the date hereof and any future
capitalized leases, purchase money indebtedness and the Notes.
"PERMITTED LIENS" shall mean (i) the Company's existing Liens as
disclosed in the Current SEC Report or XXXXX 0 xxxxxx, (xx) the security
interests created by this Agreement and the Pledge Agreement, (iii) Liens of
local or state authorities for franchise, real estate or other like taxes, (iv)
statutory Liens of landlords and liens of carriers, warehousemen, bailees,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due, (v) tax Liens not yet
due and payable and (vi) existing Liens which do not materially affect the value
of the Company's property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries.
"PLEDGED STOCK" shall have the meaning ascribed thereto in Section 3(a)
hereof.
"REAL ESTATE" shall have the meaning ascribed thereto in Section 3(l)
hereof.
"SECURED OBLIGATIONS" shall mean, collectively, the principal of and
interest on the Notes issued or issuable (as applicable) by the Company and held
by the applicable Purchaser and all other amounts from time to time owing to
such Purchasers by the Company under the Transaction Documents.
"STOCK COLLATERAL" shall mean, collectively, the Collateral described
in clauses (a) through (c) of Section 3 hereof and the proceeds of and to any
such property and, to the extent related to any such property or such proceeds,
all books, correspondence, credit files, records, invoices and other papers.
"TRADEMARK COLLATERAL" shall mean all Trademarks, whether now owned or
hereafter acquired by the Company, that are associated with the Business.
Notwithstanding the foregoing, the Trademark Collateral does not and shall not
include any Trademark which would be rendered invalid, abandoned, void or
unenforceable by reason of its being included as part of the Trademark
Collateral.
"TRADEMARKS" shall mean all trade names, trademarks and service marks,
logos, trademark and service xxxx registrations, and applications for trademark
and service xxxx registrations, including, without limitation, all renewals of
trademark and service xxxx registrations, all rights corresponding thereto
throughout the world, the right to recover for all past, present and future
infringements thereof, all other rights of any kind whatsoever accruing
thereunder or pertaining thereto, together, in each case, with the product lines
and goodwill of the business connected with the use of, and symbolized by, each
such trade name, trademark and service xxxx.
3
"UNIFORM COMMERCIAL CODE" or "UCC" shall mean the Uniform Commercial
Code as in effect in the State of New York from time to time.
Section 2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to each of the Purchasers that:
a. the Company is the sole beneficial owner of the Collateral and
no Lien exists or will exist upon any Collateral at any time
(and, with respect to the Stock Collateral, no right or option
to acquire the same exists in favor of any other Person),
except for Permitted Liens and the pledge and security
interest in favor of each of the Purchasers created or
provided for herein which pledge and security interest
constitutes a first priority perfected pledge and security
interest in and to all of the Collateral (except such
Collateral as may be subject to a Permitted Lien, in which
case, a second priority perfected security interest), assuming
applicable financing statements are been duly and properly
filed (other than Intellectual Property registered or
otherwise located outside of the United States of America);
b. the Pledged Stock directly or indirectly owned by the Company
in the entities identified in ANNEX 1 hereto is, and all other
Pledged Stock, whether issued now or in the future, will be,
duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens other than Permitted Liens and
none of such Pledged Stock is or will be subject to any
contractual restriction, preemptive and similar rights, or any
restriction under the charter or by-laws of the respective
Issuers of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained
herein);
c. the Pledged Stock directly or indirectly owned by the Company
in the entities identified in ANNEX 1 hereto constitutes all
of the issued and outstanding shares of capital stock of any
class of such Issuers beneficially owned by the Company on the
date hereof (whether or not registered in the name of the
Company) and said ANNEX 1 correctly identifies, as at the date
hereof, the respective Issuers of such Pledged Stock;
d. the Company owns and possesses the right to use, and has done
nothing to authorize or enable any other Person to use, all of
its Copyrights, Patents and Trademarks, and all registrations
of its material Copyrights, Patents and Trademarks are valid
and in full force and effect. Except as may be set forth in
said ANNEX 3, the Company owns and possesses the right to use
all material Copyrights, Patents and Trademarks, necessary for
the operation of the Business;
4
e. to the Company's knowledge, (i) except as set forth in ANNEX 3
hereto, there is no violation by others of any right of the
Company with respect to any material Copyrights, Patents or
Trademarks, respectively, and (ii) the Company is not, in
connection with the Business, infringing in any respect upon
any Copyrights, Patents or Trademarks of any other Person; and
no proceedings have been instituted or are pending against the
Company or, to the Company's knowledge, threatened, and no
claim against the Company has been received by the Company,
alleging any such violation, except as may be set forth in
said ANNEX 3;
f. the Company does not own any material Trademarks registered in
the United States of America to which the last sentence of the
definition of Trademark Collateral applies; and
Section 3. COLLATERAL. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Company hereby pledges, grants, assigns, hypothecates
and transfers to the Agent on behalf of the Purchasers as hereinafter provided,
a security interest in and Lien upon all of the Company's right, title and
interest in, to and under all personal property and other assets of the Company,
whether now owned or hereafter acquired by or arising in favor of the Company,
whether now existing or hereafter coming into existence, whether owned or
consigned by or to the Company, or leased from or to the Company and regardless
of wherever located, except for the Excluded Collateral, (all being collectively
referred to herein as "COLLATERAL") including:
a. the Company's direct or indirect ownership interest in the
respective shares of capital stock of the Issuers and all
other shares of capital stock of whatever class of the
Issuers, now or hereafter owned by the Company, together with
in each case the certificates evidencing the same
(collectively, the "PLEDGED STOCK");
b. all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a
distribution or return of capital upon or in respect of the
Pledged Stock, or resulting from a split-up, revision,
reclassification or other like change of the Pledged Stock or
otherwise received in exchange therefor, and any subscription
warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
c. without affecting the obligations of the Company under any
provision prohibiting such action hereunder or under the
Purchase Agreement or the Notes, in the event of any
consolidation or merger in which any Issuer is not the
surviving corporation, all shares of each class of the capital
stock of the successor corporation (unless such successor
corporation is the Company itself) formed by or resulting from
such consolidation or merger (the Pledged Stock, together with
all other certificates, shares, securities, properties or
moneys as may from time to time be pledged hereunder pursuant
to clause (a) or (b) above and this clause (c) being herein
collectively called the "STOCK COLLATERAL");
5
d. all accounts and general intangibles (each as defined in the
Uniform Commercial Code) of the Company constituting any right
to the payment of money, including (but not limited to) all
moneys due and to become due to the Company in respect of any
loans or advances for the purchase price of Inventory or
Equipment or other goods sold or leased or for services
rendered, all moneys due and to become due to the Company
under any guarantee (including a letter of credit) of the
purchase price of Inventory or Equipment sold by the Company
and all tax refunds (such accounts, general intangibles and
moneys due and to become due being herein called collectively
"ACCOUNTS");
e. all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of the Company
evidencing, representing, arising from or existing in respect
of, relating to, securing or otherwise supporting the payment
of, any of the Accounts, including (but not limited to)
promissory notes, drafts, bills of exchange and trade
acceptances (herein collectively called "INSTRUMENTS");
f. all inventory (as defined in the Uniform Commercial Code) of
the Company and all goods obtained by the Company in exchange
for such inventory (herein collectively called "INVENTORY");
g. all Intellectual Property and all other accounts or general
intangibles of the Company not constituting Intellectual
Property or Accounts;
h. all equipment (as defined in the Uniform Commercial Code) of
the Company (herein collectively called "EQUIPMENT");
i. each contract and other agreement of the Company relating to
the sale or other disposition of Inventory or Equipment;
j. all documents of title (as defined in the Uniform Commercial
Code) or other receipts of the Company covering, evidencing or
representing Inventory or Equipment (herein collectively
called "DOCUMENTS");
k. all rights, claims and benefits of the Company against any
Person arising out of, relating to or in connection with
Inventory or Equipment purchased by the Company, including,
without limitation, any such rights, claims or benefits
against any Person storing or transporting such Inventory or
Equipment;
6
l. all estates in land together with all improvements and other
structures now or hereafter situated thereon, together with
all rights, privileges, tenements, hereditaments,
appurtenances, easements, including, but not limited to,
rights and easements for access and egress and utility
connections, and other rights now or hereafter appurtenant
thereto ("REAL ESTATE");
m. all other tangible or intangible property of the Company,
including, without limitation, all proceeds, products and
accessions of and to any of the property of the Company
described in clauses (a) through (l) above in this Section 3
(including, without limitation, any proceeds of insurance
thereon), and, to the extent related to any property described
in said clauses or such proceeds, products and accessions, all
books, correspondence, credit files, records, invoices and
other papers, including without limitation all tapes, cards,
computer runs and other papers and documents in the possession
or under the control of the Company or any computer bureau or
service company from time to time acting for the Company.
Notwithstanding anything to the contrary set forth above, the types or items of
Collateral described above shall not include any rights or interests in any
contract, lease, permit, license, charter or license agreement covering real or
personal property, as such, if under the terms of such contract, lease, permit,
license, charter or license agreement, or applicable law with respect thereto,
the valid grant of a security interest or Lien therein to Agent is prohibited
and such prohibition has not been or is not waived or the consent of the other
party to such contract, lease, permit, license, charter or license agreement has
not been or is not otherwise obtained or under applicable law such prohibition
cannot be waived, provided that the foregoing exclusion shall in no way be
construed (a) to apply if any such prohibition is ineffective or unenforceable
under Sections 9-406, 9-407, 9-408 or 9-409 of the UCC or other applicable law
or (b) so as to limit, impair or otherwise affect Agent's unconditional
continuing security interests in and Liens upon any rights or interests of the
Company in or to monies due or to become due under any such contract, lease,
permit, license, charter or license agreement (including any Accounts).
Section 4. FURTHER ASSURANCES; REMEDIES. In furtherance of the grant of
the pledge and security interest pursuant to Section 3 hereof, the Company
hereby agrees with the Agent and each of the Purchasers as follows:
4.01 DELIVERY AND OTHER PERFECTION. The Company shall:
a. if any of the above-described shares, securities, monies or
property required to be pledged by the Company under clauses
(a), (b) and (c) of Section 3 hereof are received by the
Company, forthwith either (x) transfer and deliver to the
Agent such shares or securities so received by the Company
(together with the certificates for any such shares and
securities duly endorsed in blank or accompanied by undated
stock powers duly executed in blank) all of which thereafter
shall be held by the Agent, pursuant to the terms of this
Agreement, as part of the Collateral or (y) take such other
action as the Agent shall reasonably deem necessary or
appropriate to duly record the Lien created hereunder in such
shares, securities, monies or property referred to in said
clauses (a), (b) and (c) of Section 3;
7
b. deliver and pledge to the Agent, at the Agent's request, any
and all Instruments, endorsed and/or accompanied by such
instruments of assignment and transfer in such form and
substance as the Agent may request; provided, that so long as
no Event of Default shall have occurred and be continuing, the
Company may retain for collection in the ordinary course any
Instruments received by it in the ordinary course of business;
c. give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other
papers that may be necessary or desirable (in the reasonable
judgment of the Agent) to create, preserve, perfect or
validate any security interest granted pursuant hereto or to
enable the Agent to exercise and enforce their rights
hereunder with respect to such security interest, including,
without limitation, causing any or all of the Stock Collateral
to be transferred of record into the name of the Agent or its
nominee (and the Agent agrees that if any Stock Collateral is
transferred into its name or the name of its nominee, the
Agent will thereafter promptly give to the Company copies of
any notices and communications received by it with respect to
the Stock Collateral), provided that notices to account
debtors in respect of any Accounts or Instruments shall be
subject to the provisions of Section 4.09 below;
d. upon the acquisition after the date hereof by the Company of
any Equipment covered by a certificate of title or ownership
cause the Agent to be listed as the lienholder on such
certificate of title and within 120 days of the acquisition
thereof deliver evidence of the same to the Agent;
e. keep accurate books and records relating to the Collateral,
and stamp or otherwise xxxx such books and records in such
manner as the Agent may reasonably require in order to reflect
the security interests granted by this Agreement;
f. furnish to the Agent from time to time (but, unless an Event
of Default shall have occurred and be continuing, no more
frequently than quarterly) statements and schedules further
identifying and describing the Copyright Collateral, the
Patent Collateral and the Trademark Collateral, respectively,
and such other reports in connection with the Copyright
Collateral, the Patent Collateral and the Trademark
Collateral, as the Agent may reasonably request, all in
reasonable detail;
8
g. permit representatives of the Agent, upon reasonable notice,
at any time during normal business hours to inspect and make
abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Agent to be
present at the Company's place of business to receive copies
of all communications and remittances relating to the
Collateral, and forward copies of any notices or
communications by the Company with respect to the Collateral,
all in such manner as the Agent may reasonably require; and
h. upon the occurrence and during the continuance of any Event of
Default, upon request of the Agent, promptly notify each
account debtor in respect of any Accounts or Instruments that
such Collateral has been assigned to the Agent hereunder, and
that any payments due or to become due in respect of such
Collateral are to be made directly to the Agent.
4.02 OTHER FINANCING STATEMENTS AND LIENS. Except with respect to
Permitted Indebtedness, without the prior written consent of the Agent, the
Company shall not file or suffer to be on file, or authorize or permit to be
filed or to be on file, in any jurisdiction, any financing statement or like
instrument with respect to the Collateral in which the Agent is not named as the
sole secured party for the benefit of each of the Purchasers.
4.03 PRESERVATION OF RIGHTS. The Agent shall not be required to take
steps necessary to preserve any rights against prior parties to any of the
Collateral.
4.04 SPECIAL PROVISIONS RELATING TO CERTAIN COLLATERAL.
a. STOCK COLLATERAL.
(1) The Company will cause the Stock Collateral to
constitute at all times 100% of the total number of
shares of each class of capital stock of each Issuer
then outstanding that is owned directly or indirectly
by the Company.
(2) So long as no Event of Default shall have occurred
and be continuing, the Company shall have the right
to exercise all voting, consensual and other powers
of ownership pertaining to the Stock Collateral for
all purposes not inconsistent with the terms of this
Agreement, the Purchase Agreement, the Notes or any
other instrument or agreement referred to herein or
therein, provided that the Company agrees that it
will not vote the Stock Collateral in any manner that
is inconsistent with the terms of this Agreement, the
Purchase Agreement, the Notes or any such other
instrument or agreement; and the Agent shall execute
and deliver to the Company or cause to be executed
and delivered to the Company all such proxies, powers
of attorney, dividend and other orders, and all such
instruments, without recourse, as the Company may
reasonably request for the purpose of enabling the
Company to exercise the rights and powers which it is
entitled to exercise pursuant to this Section
4.04(a)(2).
9
(3) Unless and until an Event of Default has occurred and
is continuing, the Company shall be entitled to
receive and retain any dividends on the Stock
Collateral paid in cash out of earned surplus.
(4) If any Event of Default shall have occurred, then so
long as such Event of Default shall continue, and
whether or not the Agent exercises any available
right to declare any Secured Obligations due and
payable or seeks or pursues any other relief or
remedy available to it under applicable law or under
this Agreement, the Purchase Agreement, the Notes or
any other agreement relating to such Secured
Obligations, all dividends and other distributions on
the Stock Collateral shall be paid directly to the
Agent and retained by it as part of the Stock
Collateral, subject to the terms of this Agreement,
and, if the Agent shall so request in writing, the
Company agrees to execute and deliver to the Agent
appropriate additional dividend, distribution and
other orders and documents to that end, provided that
if such Event of Default is cured, any such dividend
or distribution theretofore paid to the Agent shall,
upon request of the Company (except to the extent
theretofore applied to the Secured Obligations) be
returned by the Agent to the Company.
b. INTELLECTUAL PROPERTY.
(1) For the purpose of enabling the Agent to exercise
rights and remedies under Section 4.05 hereof at such
time as the Agent shall be lawfully entitled to
exercise such rights and remedies, and for no other
purpose, the Company hereby grants to the Agent, to
the extent assignable, an irrevocable, non-exclusive
license (exercisable without payment of royalty or
other compensation to the Company) to use, assign,
license or sublicense any of the Intellectual
Property (other than the Trademark Collateral or
goodwill associated therewith) now owned or hereafter
acquired by the Company, wherever the same may be
located, including in such license reasonable access
to all media in which any of the licensed items may
be recorded or stored and to all computer programs
used for the compilation or printout thereof.
10
(2) Notwithstanding anything contained herein to the
contrary, so long as no Event of Default shall have
occurred and be continuing, the Company will be
permitted to exploit, use, enjoy, protect, license,
sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in
the ordinary course of the business of the Company.
In furtherance of the foregoing, unless an Event of
Default shall have occurred and is continuing, the
Agent shall from time to time, upon the request of
the Company, execute and deliver any instruments,
certificates or other documents, in the form so
requested, which the Company shall have certified are
appropriate (in its judgment) to allow it to take any
action permitted above (including relinquishment of
the license provided pursuant to clause (1)
immediately above as to any specific Intellectual
Property). Further, upon the payment in full of all
of the Secured Obligations or earlier expiration of
this Agreement or release of the Collateral, the
Agent shall grant back to the Company the license
granted pursuant to clause (1) immediately above. The
exercise of rights and remedies under Section 4.05
hereof by the Agent shall not terminate the rights of
the holders of any licenses or sublicenses
theretofore granted by the Company in accordance with
the first sentence of this clause (2).
4.05 EVENTS OF DEFAULT, ETC. During the period during which an Event of
Default shall have occurred and be continuing:
a. the Company shall, at the request of the Agent, assemble the
Collateral owned by it at such place or places, reasonably
convenient to both the Agent and the Company, designated in
its request;
b. the Agent may make any reasonable compromise or settlement
deemed desirable with respect to any of the Collateral and may
extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, any of the
Collateral;
c. the Agent shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and
such additional rights and remedies to which a secured party
is entitled under the laws in effect in any jurisdiction where
any rights and remedies hereunder may be asserted, including,
without limitation, the right, to the maximum extent permitted
by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if the Agent were
the sole and absolute owner thereof (and the Company agrees to
take all such action as may be appropriate to give effect to
such right);
d. the Agent in its discretion may, in its name or in the name of
the Company or otherwise, demand, xxx for, collect or receive
any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral, but shall
be under no obligation to do so; and
11
e. the Agent may, upon 10 Business Days, prior written notice to
the Company of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall
thereafter come into the possession, custody or control of the
Agent, or any of its respective agents, sell, lease, assign or
otherwise dispose of all or any of such Collateral, at such
place or places as the Agent deems best, and for cash or on
credit or for future delivery (without thereby assuming any
credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such
disposition or of time or place thereof (except such notice as
is required above or by applicable statute and cannot be
waived) and the Agent or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral
so disposed of at any public sale (or, to the extent permitted
by law, at any private sale), and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or
otherwise), of the Company, any such demand, notice or right
and equity being hereby expressly waived and released. In the
event of any sale, assignment, or other disposition of any of
the Trademark Collateral, the goodwill of the Business
connected with and symbolized by the Trademark Collateral
subject to such disposition shall be included, and the Company
shall supply to the Agent or its designee, for inclusion in
such sale, assignment or other disposition, all Intellectual
Property relating to such Trademark Collateral. The Agent may,
without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same
may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
4.05, including by virtue of the exercise of the license granted to the Agent in
Section 4.04(b)(1) hereof, shall be applied in accordance with Section 4.09
hereof.
The Company recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Agent may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Company
acknowledges that any such private sales to an unrelated third party in an arm's
length transaction may be at prices and on terms less favorable to the Agent
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that the Agent
shall have no obligation to engage in public sales and no obligation to delay
the sale of any Collateral for the period of time necessary to permit the
respective Issuer thereof to register it for public sale.
12
4.06 DEFICIENCY. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 4.05 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Company shall remain liable for any
deficiency.
4.07 REMOVALS, ETC. Without at least 30 days' prior written notice to
the Agent, the Company shall not (i) maintain any of its books or records with
respect to the Collateral at any office or maintain its chief executive office
or its principal place of business at any place, or permit any Inventory or
Equipment to be located anywhere other than at the address indicated for the
Company in Section 7.4 of the Purchase Agreement or at one of the locations
identified in ANNEX 4 hereto or in transit from one of such locations to another
or (ii) change its corporate name, or the name under which it does business,
from the name shown on the signature page hereto.
4.08 PRIVATE SALE. The Agent shall incur no liability as a result of
the sale of the Collateral, or any part thereof, at any private sale to an
unrelated third party in an arm's length transaction pursuant to Section 4.05
hereof conducted in a commercially reasonable manner. The Company hereby waives
any claims against the Agent arising by reason of the fact that the price at
which the Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Agent accepts the first
offer received and does not offer the Collateral to more than one offeree.
4.09 APPLICATION OF PROCEEDS. Except as otherwise herein expressly
provided, the proceeds of any collection, sale or other realization of all or
any part of the Collateral pursuant hereto, and any other cash at the time held
by the Agent under this Section 4, shall be applied by the Agent:
FIRST, to the payment of the costs and expenses of such collection,
sale or other realization, including reasonable out-of-pocket costs and expenses
of the Agent and the fees and expenses of its agents and counsel, and all
expenses, and advances made or incurred by the Agent in connection therewith;
NEXT, to the payment in full of the Secured Obligations in each case
equally and ratably in accordance with the respective amounts thereof then due
and owing to each of the Purchasers; and
FINALLY, to the payment to the Company, or its successors or assigns,
or as a court of competent jurisdiction may direct, of any surplus then
remaining.
As used in this Section 4, "PROCEEDS" of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of debt of the Company or any issuer of or obligor on any of the
Collateral.
13
4.10 ATTORNEY-IN-FACT. Without limiting any rights or powers granted by
this Agreement to the Agent while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default, the Agent is hereby appointed the attorney-in-fact of the Company for
the purpose of carrying out the provisions of this Section 4 and taking any
action and executing any instruments which the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Purchasers shall be entitled
under this Section 4 to make collections in respect of the Collateral, the Agent
shall have the right and power to receive, endorse and collect all checks made
payable to the order of the Company representing any dividend, payment, or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
4.11 PERFECTION. (i) Prior to or concurrently with the execution and
delivery of this Agreement, the Company shall file or deliver to Agent for
filing such financing statements and other documents in such offices as the
Agent may request to perfect the security interests granted by Section 3 of this
Agreement, and (ii) at any time requested by the Agent, the Company shall
deliver to the Agent all share certificates of capital stock directly or
indirectly owned by the Company in the entities identified in ANNEX 1 hereto,
accompanied by undated stock powers duly executed in blank.
4.12 TERMINATION. When all Secured Obligations (other than contingent
obligations for which no claim has been made) shall have been paid in full, this
Agreement shall terminate, and the Agent shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or on the order of the Company and to be released and
cancelled all licenses and rights referred to in Section 4.04(b)(1) hereof. The
Agent shall also execute and deliver to the Company upon such termination such
Uniform Commercial Code termination statements, certificates for terminating the
Liens on the Motor Vehicles and such other documentation as shall be reasonably
requested by the Company to effect the termination and release of the Liens on
the Collateral.
4.13 EXPENSES. The Company agrees to pay to the Agent all out-of-pocket
expenses (including reasonable expenses for legal services of every kind) of, or
incident to, the enforcement of any of the provisions of this Section 4, or
performance by the Agent of any obligations of the Company in respect of the
Collateral which the Company has failed or refused to perform upon reasonable
notice, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement in respect of any of the Collateral, and
for the care of the Collateral and defending or asserting rights and claims of
the Agent in respect thereof, by litigation or otherwise, including expenses of
insurance, and all such expenses shall be Secured Obligations to the Agent
secured under Section 3 hereof.
4.14 FURTHER ASSURANCES. The Company agrees that, from time to time
upon the written request of the Agent, the Company will execute and deliver such
further documents and do such other acts and things as the Agent may reasonably
request in order fully to effect the purposes of this Agreement.
14
4.15 INDEMNITY. Each of the Purchasers hereby jointly and severally
covenants and agrees to reimburse, indemnify and hold the Agent harmless from
and against any and all claims, actions, judgments, damages, losses,
liabilities, costs, transfer or other taxes, and expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred or suffered
without any bad faith or willful misconduct by the Agent, arising out of or
incident to this Agreement or the administration of the Agent's duties
hereunder, or resulting from its actions or inactions as Agent.
Section 5. MISCELLANEOUS.
5.01 NO WAIVER. No failure on the part of the Agent or any of its
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Agent or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
5.02 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York.
5.03 NOTICES. All notices, requests, consents and demands hereunder
shall be in writing and facsimile (facsimile confirmation required) or delivered
to the intended recipient at its address or telex number specified pursuant to
Section 7.4 of the Purchase Agreement and shall be deemed to have been given at
the times specified in said Section 7.4.
5.04 WAIVERS, ETC. The terms of this Agreement may be waived, altered
or amended only by an instrument in writing duly executed by the Company and the
Agent. Any such amendment or waiver shall be binding upon each of the Purchasers
and the Company.
5.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the Company and
each of the Purchasers (provided, however, that the Company shall not assign or
transfer its rights hereunder without the prior written consent of the Agent).
5.06 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same instrument
and any of the parties hereto may execute this Agreement by signing any such
counterpart.
5.07 AGENT. Each Purchaser agrees to appoint Iroquois Master Fund, Ltd.
as its Agent for purposes of this Agreement. The Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
5.08 SEVERABILITY. If any provision hereof is invalid and unenforceable
in any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Purchasers in order to carry out
the intentions of the parties hereto as nearly as may be possible and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
15
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed as of the day and year first above written.
COMPANY: VASO ACTIVE PHARMACEUTICALS, INC.
By:
------------------------------------
Name:
Title:
AGENT: IROQUOIS MASTER FUND LTD.
By:
------------------------------------
Name:
Title:
PURCHASERS: IROQUOIS MASTER FUND, LTD.
By:
------------------------------------
Name:
Title:
PURCHASERS:
----------------------------------------
By:
------------------------------------
Name:
Title:
ANNEX 1
ENTITIES IN WHICH THE COMPANY IS PLEDGING ITS CAPITAL STOCK
Approximate
Entity Percentage Interest
------ -------------------
ANNEX 2
EXCLUDED COLLATERAL
ANNEX 3
EXCEPTIONS FOR COPYRIGHTS, PATENTS AND TRADEMARKS
ANNEX 4
LIST OF LOCATIONS
ANNEX 5
EXISTING LIENS
EXHIBIT F
TRANSFER AGENT INSTRUCTIONS
[Transfer Agent]
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement (the "Purchase
Agreement"), dated as of August ___, 2005, among Vaso Active Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), and the purchasers named therein
(the "Holders") pursuant to which the Company issued, in a private placement
transaction, to institutional investors:
(i) senior secured convertible notes (the "Initial Notes")
convertible into the Company's Class A common stock, par value
$0.0001 per share (the "Common Stock");
(ii) warrants (the "Initial Warrants") which shall be exercisable
into shares of Common Stock; and
(iii) additional investment rights which shall be exercisable into
(a) additional senior convertible notes ("Additional Notes")
and (b) warrants (the "Additional Investment Rights
Warrants"). The shares of Common Stock issuable and
transferable upon exercise or conversion of the Initial Notes,
Initial Warrants, Additional Notes and Additional Investment
Rights Warrants are collectively referred to herein as the
"Underlying Shares." Capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the
Purchase Agreement.
The Company has agreed with the Holders that it will instruct you to:
(A) issue the Underlying Shares free of all restrictive and other
legends if, at the time of such issue,
(i) a registration statement covering the resale of such
Underlying Shares has been declared effective by the
Commission under the Securities Act and such Registration
Statement is then effective;
(ii) (ii) such Underlying Shares are eligible for sale under Rule
144(k) of the Securities Act; or
(iii) such legend is not otherwise required under applicable
requirements of the Securities Act;
PROVIDED, HOWEVER, that we (or our counsel) have informed you
in advance of such issue that the Company has a sufficient number of shares of
its Class A Common Stock authorized for issuance for you to effect the issuance
of the Underlying Shares.
(B) reissue the Underlying Shares (if such shares were originally
issued with a restrictive legend) free of all restrictive and other legends
(i) upon the effectiveness of a registration statement covering
the resale of the Underlying Shares;
(ii) following any sale of such Underlying Shares pursuant to Rule
144;
(iii) such Underlying Shares are eligible for sale under Rule
144(k); or if
(iv) such legend is not otherwise required under applicable
requirements of the Securities Act.
In furtherance of this instruction, upon the effectiveness of
the Registration Statement, we have instructed our counsel to deliver to you an
opinion letter containing operative language substantially in the form attached
hereto as EXHIBIT 1 to the effect that the Registration Statement has been
declared effective by the Commission and, accordingly, the Underlying Shares may
be issued (or reissued, as applicable) and delivered to the Holders free of all
restrictive and other legends.
Except as specified in the immediately preceding two
paragraphs, you need not (but, at your discretion, may) require further letters
from us or our counsel for you to effect any future issuance or reissuance of
Underlying Shares to the Holders as contemplated by the Purchase Agreement and
this letter.
Please be advised that the Holders have relied upon this
instruction letter as an inducement to enter into and consummate the Purchase
Agreement. Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions.
Very truly yours,
VASO ACTIVE PHARMACEUTICALS, INC.
By __________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
[Transfer Agent]
By _________________________________
Name:
Title:
EXHIBIT G
OPINION OF COMPANY COUNSEL
Direct Dial Number:
(000) 000-0000
August 16, 2005
Iroquois Master Fund, Ltd.
and the other Purchasers referred to below
c/o Iroquois Master Fund, Ltd.
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
VASO ACTIVE PHARMACEUTICALS, INC.
---------------------------------
Ladies and Gentlemen:
We have acted as counsel to Vaso Active Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), in connection with the preparation,
execution and delivery by the Company of the Securities Purchase Agreement dated
as of August 16, 2005 (the "Agreement"), by and among the Company and the
purchasers identified on the signature pages thereto (the "Purchasers").
We are delivering this opinion letter to you at the request of the
Company pursuant to Section 2.2(a)(iv) of the Agreement. Unless otherwise
defined herein, capitalized terms shall have the respective meanings set forth
in the Agreement.
The Company initially engaged this firm as legal counsel in March 2004
in connection with management's concern that third parties may have engaged in
illegal short selling of the Company's common stock. The Company engaged this
firm in April 2004 in connection with (i) an investigation by the Commission
relating to disclosures by the Company concerning Food and Drug Administration
("FDA") approval of certain of the Company's products and (ii) class actions
regarding the same disclosure. Commencing in July 2004, we have provided legal
representation to the Company in the preparation of its periodic reports under
the Exchange Act. We have not provided legal representation to the Company in
connection with matters arising under FDA rules and regulations or other similar
federal and state laws.
As such counsel, we have examined originals or copies, certified to our
satisfaction, of the following documents:
(i) the Agreement and the other documents listed on Schedule A hereto
(collectively, the "Transaction Documents");
(ii) the Certificate of Incorporation of the Company, as amended, as
certified by the Secretary of State of Delaware;
(iii) the Bylaws of the Company, as amended, as certified by the
Secretary of the Company;
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August 16, 2005
(iv) the resolutions of the Board of Directors of the Company relating
to the Agreement, as certified by the Secretary of the Company; and
(v) such other records, agreements, officers certificates, certificates
of public officials and other documents as we have deemed appropriate in order
to render this opinion.
In rendering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies. We also have assumed that all natural persons, including each
representative of the Company, who signed the Transaction Documents, had
sufficient legal capacity to do so. We have further assumed that there has not
been any mutual mistake of fact, fraud, duress or undue influence in connection
with this transaction that could affect the validity or enforceability of any of
the Transaction Documents.
In rendering this opinion, we have also assumed that each of the
Transaction Documents has been duly authorized, executed and delivered by each
party thereto (other than the Company) and that each of the Transaction
Documents are binding and enforceable against each such party in accordance with
its terms.
As to questions of fact material to the opinions expressed herein, we
have relied solely and without investigation upon the officers certificate and
certificates of public officials with respect to the accuracy of the factual
matters contained therein, as well as on the representations of the Company
contained in the Transaction Documents (including the exhibits thereto) and the
documents delivered pursuant thereto.
With respect to any property securing the obligations of the Company
under the Transaction Documents, we have assumed that the Company holds the
requisite title and rights to any such property necessary to grant a security
interest therein.
To the extent that the opinions contained herein are given to our
knowledge, such knowledge means the conscious awareness of facts, without any
investigation and inquiry, by those attorneys currently with our firm who have
provided substantive representation to the Company in connection with this
transaction, and does not include matters of which such attorneys could be
deemed to have constructive knowledge.
On the basis of and subject to the assumptions, qualifications,
exceptions and limitations set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
all requisite power and authority required to own and operate its properties and
assets and to carry on its business as now conducted and as proposed to be
conducted (all as described in the Company's Annual Report on Form 10-KSB for
its fiscal year ended December 31, 2004.)
2. The Company has no subsidiaries.
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August 16, 2005
3. The Company has all requisite power and authority to execute,
deliver and perform the Agreement, the Additional Investment Right Agreement,
the Security Agreement, Pledge Agreement and each other document or instrument
executed by it, in connection therewith, to issue, sell and deliver the Notes,
the Warrants and the Additional Investment Rights being issued and delivered on
the date hereof ("Today's Securities") pursuant to the Agreement, to issue and
deliver the Underlying Shares issuable upon conversion of the Notes in
accordance with their terms, and to carry out and perform its obligations under,
and to consummate the transactions contemplated by, the Transaction Documents.
4. All corporate action on the part of the Company and its
directors necessary for the authorization, execution and delivery by the Company
of the Transaction Documents, the authorization of the Securities, the issuance,
sale and delivery of Today's Securities pursuant to the Agreement, the issuance
and delivery of the Underlying Shares issuable upon conversion of the Notes in
accordance with their terms, and the consummation by the Company of the
transactions contemplated by the Transaction Documents has been duly taken. The
Transaction Documents have been duly and validly executed and delivered by the
Company and constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) that such enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general and
(b) that the remedies of specific performance and injunctive and other forms of
injunctive relief may be subject to equitable defenses.
5. After giving effect to the transactions contemplated by the
Agreement, and immediately after the Closing, the authorized capital stock of
the Company will consist of: 10,000,000 shares of preferred stock and an
aggregate of 30,000,000 shares of Common Stock, of which 10,328,613 shares will
be issued and outstanding and a total of 21,649,976 shares will be reserved (or
will be required to be reserved pursuant to the Transaction Documents) for
issuance upon conversion of issued and outstanding options, warrants and other
securities convertible into or exercisable for Common Stock (including Today's
Securities). To our knowledge, all presently issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable and free of any preemptive or similar rights. Today's Securities
have been, and the Underlying Shares issuable upon conversion of the Notes, when
so issued in accordance with the terms of the Notes will be, validly issued.
Today's Securities are, and the Underlying Shares issuable upon conversion of
the Notes, when so issued in accordance with the terms of the Notes, will be
fully paid and nonassessable and, to our knowledge, free of preemptive or
similar rights. To our knowledge, except for rights described in Schedule 3.1(g)
of the Agreement, there are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire from the
Company any capital stock or other securities of the Company, or any other
agreements to issue any such securities or rights. The rights, privileges and
preferences of the Common Stock are as stated in the Company's Certificate of
Incorporation and as provided under the General Corporation Law of the State of
Delaware (the "Delaware GCL").
6. To our knowledge, the Company has filed all reports required to
be filed by it under Sections 13(a) and 15(d) of the Exchange Act.
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August 16, 2005
7. Based in part upon the representations of the Purchasers
contained in the Agreement, Today's Securities may be issued to the Purchasers,
and the Underlying Shares issuable upon conversion of the Notes may be issued,
without registration under the Securities Act.
8. The execution, delivery and performance by the Company of, and
the compliance by the Company with the terms of, the Transaction Documents do
not, the issuance, sale and delivery of Today's Securities pursuant to the
Agreement do not, and the issuance and delivery of the Underlying Shares in
accordance with their terms will not, (a) conflict with or result in a violation
of any provision of law, rule or regulation having applicability to the Company
or of the certificate of incorporation or by-laws or other similar
organizational documents of the Company; (b) conflict with, result in a breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or result in or permit the termination or
modification of, any agreement, instrument, order, writ, judgment or decree
known to us to which the Company is a party or is subject, except such as may
result in connection with a certain Representative's Warrant Agreement which the
Company entered into in December 2003; (c) result in the creation or imposition
of any lien, claim or encumbrance on any of the Company's assets or properties,
except pursuant to the terms of the Transaction Documents.
9. To our knowledge, other than as set forth on the Schedules to
the Agreement, there is no claim, action, suit, proceeding, arbitration,
investigation or inquiry, pending or threatened, before any court or
governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or any of its officers, directors or employees (in
connection with the discharge of their duties as officers, directors and
employees), or affecting any of its properties or assets, which, if determined
adversely to the Company or any of such other persons, would individually or in
the aggregate have Material Adverse Effect.
10. No consent, license, permit, waiver, approval or authorization
of, or designation, declaration, registration or filing with, any court,
governmental or regulatory authority, or self-regulatory organization, is
required in connection with the valid execution, delivery and performance by the
Company of the Transaction Documents or the consummation of the transactions
contemplated thereby, including the offer, sale, issuance or delivery of the
Securities, except (a) such filings, notices and approvals as may be required
under applicable state "blue sky" laws, and (b) the waivers of the registration
rights identified in Schedule 3.1(e) of the Agreement.
11. The Company is not an Investment Company within the meaning of
the Investment Company Act of 1940, as amended.
12. The Security Agreement creates in favor of the Purchaser
Representative (as defined in the Security Agreement), on behalf of the
Purchasers, a security interest under the NYUCC (as hereinafter defined) in the
Collateral (as such term is defined in the Security Agreement), to the extent
the Company has rights in or the power to transfer rights in such Collateral and
to the extent Article 9 of the Uniform Commercial Code as in effect in the state
of New York as of the date hereof (the "NYUCC") is applicable thereto
(collectively, the "ARTICLE 9 COLLATERAL").
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August 16, 2005
13. Assuming that the Financing Statements have been duly and
properly filed with the Secretary of State of the State of Delaware, Purchasers
will have a perfected security interest in that part of the Article 9 Collateral
in which a security interest can be perfected by filing Financing Statements
under the Uniform Commercial Code as in effect in the State of Delaware as of
the date hereof.
14. The Pledge Agreement, together with the delivery of the
certificates representing the Pledged Collateral (as defined in the Pledge
Agreement) to the Purchaser Representative in the State of New York indorsed to
or issued in the name of the Purchaser Representative or in blank, create in
favor of the Purchaser Representative, on behalf of the Purchasers, a perfected
security interest in the Pledged Collateral under the NYUCC.
15. We note that the Transaction Documents provide that they are
to be governed by and construed in accordance with the substantive law of the
State of New York. In any proceedings arising out of or relating to the
Transaction Documents in any court of the Commonwealth of Pennsylvania, or in
any Federal court sitting in the Commonwealth of Pennsylvania, that court would
give effect to the governing law provision of the Transaction Documents, except
to the extent that the application of New York law is contrary to a fundamental
public policy of the Commonwealth of Pennsylvania or any other state whose law
would apply to an issue absent such choice of New York law. However, our opinion
is given as if the law of the Commonwealth of Pennsylvania, without regard to
its conflict of laws provisions, were chosen as the governing law in the
Transaction Documents. Based on that assumption, the Transaction Documents would
be valid and binding obligations of the Company, enforceable against the Company
in accordance with their respective terms.
The foregoing opinions are subject to the following qualifications,
exceptions and limitations:
(a) Our opinions as to the good standing of the Company in the States
of Delaware and Massachusetts are based solely on our review of the good
standing certificates provided by the Secretary of State of the relevant State.
(b) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
the rights and remedies of creditors generally.
(c) Our opinions are subject to limitations imposed by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), including without limitation concepts of
materiality, reasonableness, good faith and fair dealing.
(d) We express no opinion in paragraphs 7 or 8 hereof, or elsewhere in
this letter, as to matters involving the possible "integration", for purposes of
Section 5 of the Securities Act, of the offer, sale or issuance of any
securities pursuant to the Transaction Documents with any offering of securities
pursuant to any Registration Statement to be filed under the terms of the
Transaction Documents.
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August 16, 2005
(e) We express no opinion in paragraph 8 hereof, or elsewhere in this
letter, as to the adequacy or legal sufficiency of information or disclosure
concerning the Company (with respect to its business, financial results,
prospects or otherwise) provided by or on behalf of the Company to the
Purchasers.
(f) We have made no examination of, and express no opinion with respect
to, the title to or ownership of any collateral or any other property. In
rendering our opinion in paragraphs 12, 13 and 14 hereof, we have assumed
without investigation that the Company has rights in the collateral in which a
security interest is granted thereunder. We have made no examination of, and
express no opinion with respect to, the priority of any lien or security
interest, whether or not perfected.
(g) We express no opinion as to the validity or enforceability in any
collateral consisting of documents, contracts, accounts receivable, instruments
or general intangibles that contain prohibitions against pledge, transfer or
assignment, or that are otherwise nontransferable, or with respect to which all
required consents necessary to the assignment or transfer of such collateral
have not been obtained.
(h) We express no opinion as to the adequacy of any notice with respect
to the disposition of any Collateral. We also express no opinion as to the
effectiveness or enforceability of provisions relating to waivers of notice or
waivers of other rights, consent to jurisdiction or service, severability,
indemnity, prepayment fees or penalties, choice of law, confession of judgment,
the availability of self-help in any particular event or circumstance,
appointment of an attorney in fact or the grant of any power of attorney or
provisions which release or limit your liability or relate to cumulative
remedies or (to the extent they purport to or would have the effect of
compensating you in amounts in excess of any actual loss suffered by you)
provisions relating to the payment of a default rate of interest.
(i) Requirements in the Transaction Documents specifying that
provisions of the Transaction Documents may only be waived in writing may not be
enforced to the extent that an oral agreement or an implied agreement by trade
practice or course of conduct has been created modifying any provision of such
Transaction Documents.
(j) As used in paragraph (b) above, the term "fraudulent transfer" laws
includes laws relating to restrictions on the ability of a corporation to
declare or pay dividends, reacquire shares of its own stock, or make other
distributions on or with respect to its capital stock, as well as the
Pennsylvania Fraudulent Transfer Act and similar laws.
(k) Applicable Pennsylvania and federal laws, regulations and
ordinances, court decisions and constitutional requirements may limit or render
unenforceable certain of the provisions of the Transaction Documents, but in our
opinion, none of the same would materially impair the practical realization of
the benefits intended to be provided by the Company pursuant to the Transaction
Documents.
(l) The opinions in this letter are limited to the matters set forth
herein, and no opinion may be inferred or implied beyond the matters expressly
stated in this letter. The opinions expressed herein must be read in conjunction
with the assumptions, limitations, exceptions and qualifications set forth in
this letter. We assume no obligation to update this opinion to advise you of any
changes in facts or laws subsequent to the date hereof.
To: Iroquois Master Fund, Ltd., et al. Page 7
Xxxxxx 00, 0000
(x) We are admitted to practice in the Commonwealth of Pennsylvania. We
have made such investigation of the Delaware GCL as we have considered
appropriate for the purpose of rendering the opinions expressed above. Our
opinion is limited in all respects to the laws of the Commonwealth of
Pennsylvania, the Delaware GCL, the laws of the State of New York as discussed
above in paragraph 15, and, as to the opinion set forth in paragraph 13, above,
the Uniform Commercial Code as in effect in the State of Delaware, and, as to
the opinions set forth in paragraphs 12 and 14, above, the Uniform Commercial
Code as in effect in the State of New York, and the federal law of the United
States in effect as of the date hereof and we express no opinion as to the laws
of any other jurisdiction. In rendering opinions in paragraphs 12, 13, and 14,
above, regarding NYUCC and the Delaware Uniform Commercial Code, we have
assumed, with your permission, that the NYUCC and the Delaware Uniform
Commercial Code are identical to the Pennsylvania Uniform Commercial Code in all
material respects.
This opinion letter may be relied upon only by you in connection with
the execution and delivery of the Transaction Documents and the transactions
contemplated thereby. You may not rely upon this opinion letter for any other
purpose, and no other person or entity may rely upon this opinion letter for any
purpose without our prior written consent. This opinion letter may not be
referred to, or described, furnished or quoted to, any other person, firm or
entity, without in each instance our prior written consent.
Sincerely yours,
XXXXXXXX XXXXXX LLP
SCHEDULE A
TRANSACTION DOCUMENTS
---------------------
(a) Securities Purchase Agreement;
(b) The Additional Investment Right;
(c) Notes;
(d) Warrants;
(e) Security Agreement;
(f) Pledge Agreement; and
(g) The Transfer Agent Instructions.
EXHIBIT 1 TO TRANSFER AGENT INSTRUCTIONS
[Counsel's Letterhead]
[Transfer Agent]
Re: VASO ACTIVE PHARMACEUTICALS, INC.
To Whom It May Concern:
We are writing on behalf of our client, Vaso Active Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), in connection with the Company's
recent filing of a Registration Statement on Form ___ (Registration No. ______)
(the "Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to ____ shares of the Company's Class A common stock, par value
$0.0001 per share (the "Registrable Securities"), issued or which may be issued
to the selling stockholders (the "Selling Stockholders") listed in the selling
stockholders table at pages __ of the final prospectus, a copy of which is
attached hereto as Exhibit A.
In connection with the foregoing, we advise you that the SEC has
entered an order declaring the Registration Statement effective under the
Securities Act of 1933, as amended (the "Securities Act"), on ___ __, 2005. We
have no knowledge that any stop order suspending its effectiveness has been
issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC.
This is to advise you that you may issue (or reissue, as applicable)
Registrable Securities to be held by any Selling Stockholder without any
restriction or other legend. You need not (but, at your discretion, may) require
further letters from us to effect any future legend-free issuance or reissuance
of shares of Common Stock to the Selling Stockholders as contemplated by the
Company's Transfer Agent Instructions dated August ___, 2005.
EXHIBIT H
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share; and
o a combination of any such methods of sale.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus after we have filed an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.
The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares of common stock. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
The selling stockholders have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities
Exchange Act of 1934 may apply to sales of our common stock and activities of
the selling stockholders.
EXHIBIT I
ESCROW AGREEMENT
----------------
This Escrow Agreement is dated as of August 16, 2005 (this "AGREEMENT")
and is by and among Vaso Active Pharmaceuticals, Inc., a Delaware corporation
(the "COMPANY"), each of the Purchasers (as such term is defined the Purchase
Agreement (hereinafter defined)), Iroquois Master Fund, Ltd., as Purchaser
representative ("Purchaser Rep") and Xxxxxxxx Xxxxxx LLP, as escrow agent (the
"ESCROW AGENT"), with reference to the following facts:
WHEREAS, the Company and the Purchasers (defined therein) have entered
into a Securities Purchase Agreement dated as of August 16, 2005 (the "PURCHASE
AGREEMENT", defined terms used herein and not otherwise defined shall have the
meanings set forth in the Purchase Agreement), which contemplates that the
Company will place $437,000 (the "Escrow Deposit"), into escrow, in accordance
with this Agreement, as an additional inducement to cause the Purchasers to
enter into the Purchase Agreement; and
WHEREAS, the Company shall deposit or cause to be deposited into escrow
the Escrow Deposit on the Closing Date, which is to be held and disbursed by the
Escrow Agent in accordance with Section 4 of this Agreement; and
WHEREAS, the Escrow Agent will hold the Escrow Deposit in Account No.
367534575 at Commerce Bank/PA, N.A. ("Commerce Bank"), ABA No. 000000000 (the
"ESCROW ACCOUNT").
NOW THEREFORE, in consideration of the agreements and covenants herein
set forth, the parties hereby agree as follows:
1. APPOINTMENT AND AGREEMENT OF ESCROW AGENT. The parties hereby appoint the
Escrow Agent to serve as, and the Escrow Agent hereby agrees to act as, escrow
agent upon the terms and conditions of this Agreement.
2. ESTABLISHMENT OF THE ESCROW ACCOUNT; PURPOSE.
(a) On the date hereof, the Company shall deliver, or cause to be
delivered, to the Escrow Agent the Escrow Deposit. The Escrow Agent shall hold
the Escrow Deposit and all interest and other amounts earned thereon in escrow
pursuant to this Agreement, in the Escrow Account for the benefit of the
Company.
(b) The Escrow Deposit will be deposited with the Escrow Agent in the
Escrow Account and will be held by the Escrow Agent to fund the Company's
payment of interest on the Notes.
3. EFFECTIVE TIME OF AGREEMENT. This Agreement shall be effective immediately
following the Closing.
4. RELEASE OF ESCROW DEPOSIT.
(a) The Escrow Agent shall only release and deliver the Escrow Deposit
as follows:
(i) On each of the Interest Payment Dates set forth on Exhibit
B, the Escrow Agent upon receipt of a written instruction executed by the
Company (or a certified copy of a final order of a court of competent
jurisdiction) directing delivery of part of the Escrow Deposit to the
Purchasers, the Escrow Agent shall deliver such portion of the Escrow Deposit to
the Purchasers pursuant to the Company's instructions, which shall be delivered
to the Escrow Agent at least two business days prior to the date on which the
delivery of such portion of the Escrow Deposit to the Purchasers shall occur.
(ii) If the Escrow Agent receives a written notice executed by
the Purchaser Rep, on behalf of the Purchasers, stating that the Purchasers are
entitled to any part of the Escrow Deposit, the Escrow Agent shall send a copy
of that notice to the Company and, unless the Escrow Agent has received a
written objection from the Company within seven business days thereafter, the
Escrow Agent shall deliver the portion of the Escrow Deposit set forth in the
notice from the Purchaser Rep in accordance with such notice. If the Escrow
Agent receives a written objection from the Company during such seven day
period, the Escrow Agent shall send a copy of the written objection to the
Purchaser Rep and shall not deliver any portion of the Escrow Deposit until it
shall have received a written instruction executed by the Company and Purchaser
Rep or a certified copy of a final order of a court of competent jurisdiction
directing delivery of such portion of the Escrow Deposit, and the Escrow Agent
shall then deliver the Escrow Deposit as so directed.
(iii) If the Escrow Agent receives conflicting instructions
from the Company and the Purchaser Rep regarding delivery of the Escrow Deposit,
it shall send a copy of the instructions from each party to the other and shall
not deliver any portion of the Escrow Deposit until it shall have received a
written instruction executed by the Company and the Purchaser Rep or a certified
copy of a final order of a court of competent jurisdiction directing delivery of
the applicable portion of the Escrow Deposit, and the Escrow Agent shall then
deliver such portion of the Escrow Deposit as so directed.
(b) The Escrow Agent may at any time commence an action in the nature
of interpleader or other legal proceedings and may deposit the Escrow Deposit
with the clerk of the court.
(c) Upon any delivery or deposit of the Escrow Deposit as provided in
this Section 4, the Escrow Agent shall be released and discharged from any
further obligation under this Agreement.
5. LIQUIDATION OF THE ESCROW ACCOUNT. Whenever the Escrow Agent shall be
required to make payment from the Escrow Account, the Escrow Agent shall pay
such amounts by liquidating the investments in the Escrow Account, as authorized
in Paragraph 7 below, to the extent necessary to pay such amounts in full and in
cash.
2
6. MAINTENANCE OF THE ESCROW ACCOUNT; TERMINATION OF ESCROW. The Escrow Agent
shall continue to maintain the Escrow Account, as the case may be, until the
earlier of (i) the time at which there shall be no funds in such Escrow Account
or (ii) the termination of this Agreement in accordance with the terms hereof.
7. INVESTMENT OF ESCROW AMOUNT; TREATMENT OF INTEREST. The Escrow Agent shall
invest and reinvest moneys on deposit in the Escrow Account in any combination
of the following: (a) readily marketable direct obligations of the Government of
the United States or any agency or instrumentality thereof or readily marketable
obligations unconditionally guaranteed by the full faith and credit of the
Government of the United States, (b) insured certificates of deposit of, or time
deposits with Commerce Bank or a branch or affiliate thereof or any commercial
bank that is a member of the Federal Reserve System and which issues (or the
parent of which issues) commercial paper rated as described in clause (c), is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least $1 billion or (c) commercial paper in
an aggregate amount of no more than $1,000,000 per issuer outstanding at any
time, issued by any corporation organized under the laws of any State of the
United States, rated at least "Prime 1 " (or the then equivalent grade) by
Xxxxx'x Investors Services, Inc. or "A 1" (or the then equivalent grade) by
Standard & Poors, Inc. All interest and other income earned on such monies shall
be the income of the Company. The Company shall file tax returns and, if
necessary, the Escrow Agent shall file a Form 1099 consistent with such
treatment.
8. CONCERNING THE ESCROW AGENT.
(a) The Escrow Agent shall not have any liability to any of the parties
to this Agreement or to any third party arising out of its services as Escrow
Agent under this Agreement, except for damages directly resulting from the
Escrow Agent's willful misconduct or gross negligence. Without limiting the
generality of the preceding sentence, in no event shall the Escrow Agent have
any liability arising out of losses resulting from its investment or
reinvestment of the Escrow Deposit.
(b) The Escrow Agent shall be entitled to rely upon any judgment,
notice, instrument or other writing delivered to it under this Agreement without
being required to determine the authenticity of, or the correctness of any fact
stated in, that document. The Escrow Agent may act in reliance upon any
instrument or signature which is believed by it in good faith to be genuine and
may assume that any person purporting to give any notice or receipt or advice or
make any statement or execute any document in connection with this Agreement has
been duly authorized to do so.
(c) The Escrow Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement. The Escrow Agent shall not have any
obligations arising out of or be bound by the provisions of any other agreement,
written or oral, including, but not limited to, the Purchase Agreement.
3
(d) The Escrow Agent shall have no responsibility with respect to the
sufficiency of the arrangements contemplated by this Agreement to accomplish the
intentions of the parties hereto.
(e) The Escrow Agent shall act under this Agreement as a depository
only and shall not be responsible or liable for (i) the sufficiency,
correctness, genuineness, collection or validity of any instrument deposited
with it; (ii) the form of execution of those instruments; (iii) the identity,
authority or rights of any person executing or depositing those instruments or
(iv) the terms and conditions of any instrument pursuant to which the parties
may act.
(f) The Escrow Agent shall not be responsible or liable for the safe
custody of the Escrow Deposit and shall have no responsibility to (i) provide or
maintain insurance on the Escrow Deposit or (ii) provide an indemnity or
otherwise account for any loss, damage or theft of the Escrow Deposit other than
any loss, damage or theft arising out of or as a result of the Escrow Agent's
willful misconduct or gross negligence.
9. REPRESENTATIONS.
(a) The Company and Purchaser Rep each represents and warrants to the
Escrow Agent and to the other that it has full power and authority to enter into
and perform this Agreement, that the execution and delivery of this Agreement
was duly authorized by all necessary corporate action, and that this Agreement
is enforceable against it in accordance with its terms.
(b) The Company represents and warrants to the Escrow Agent and the
Purchasers that this Agreement has been (or upon delivery will be) duly executed
by the Company and is, or when delivered in accordance with the terms hereof,
will constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(c) The Company represents and warrants to the Escrow Agent and the
Purchasers that the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby do not and will not (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a debt or otherwise) or other understanding to which the Company is
a party or by which any property or asset of the Company is bound or affected,
or (iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations and the rules and regulations of any self-regulatory organization to
which the Company or its securities are subject), or by which any property or
asset of the Company is bound or affected.
4
10. RESIGNATION; SUCCESSOR ESCROW AGENT. The Escrow Agent (and any successor
escrow agent) may at any time resign as such upon 30 days prior notice to each
of the other parties hereto. Upon receipt of a notice of resignation, each of
the other parties shall use their best efforts to select a successor agent
within 30 days, but if within that 30 day period the Escrow Agent has not
received a notice executed by both of them appointing a successor escrow agent
and setting forth its name and address, the Escrow Agent may (but shall not be
obligated to) select on their behalf a bank or trust company to act as successor
escrow agent, for such compensation as that bank or trust company customarily
charges and on such terms and conditions not inconsistent with this Agreement as
that bank or trust company reasonably requires. A successor escrow agent
selected by the resigning Escrow Agent may become the Escrow Agent by confirming
in writing its acceptance of the position. The Company and Purchaser Rep shall
sign such other documents as the successor escrow agent reasonably requests in
connection with its appointment, and each of them hereby irrevocably appoints
the Escrow Agent as its attorney-in-fact to sign all such documents in its name
and place. The Escrow Agent may deliver the Escrow Deposit to the successor
escrow agent selected pursuant to this provision and, upon such delivery, the
successor escrow agent shall become the Escrow Agent for all purposes under this
Agreement and shall have all of the rights and obligations of the Escrow Agent
under this Agreement and the resigning Escrow Agent shall have no further
responsibilities or obligations under this Agreement. Except as otherwise agreed
to in writing by the parties, the Escrow Deposit shall not be released unless
and until a successor Escrow Agent has been appointed in accordance with this
Section.
11. NOTICES. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date received if delivered personally, sent by nationally recognized
overnight courier or mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address,
which shall be effective upon receipt), or sent by facsimile transmission, with
confirmation received, to the telecopy numbers specified below:
If to the Company:
00 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxxx
Fax No.: (000) 000-0000
With a copy to:
Xxxxxxxx Xxxxxx LLP
3200 Mellon Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxx/Xxxxxxx Xxxxx
Fax No.: (000) 000-0000
5
If to the Purchaser Rep:
Iroquois Master Fund, Ltd.
000 Xxxxxxxxx Xxx.
00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxxxxxx
With a copy to:
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
If to the Escrow Agent:
Xxxxxxxx Xxxxxx LLP
3200 Mellon Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxx/Xxxxxxx Xxxxx
Fax No.: (000) 000-0000
12. FEES OF THE ESCROW AGENT. The fees and charges of the Escrow Agent with
respect to this Agreement shall be paid by the Company in accordance with the
Escrow Agent's customary fees as charged from time to time pursuant to Exhibit A
hereto.
13. MISCELLANEOUS.
(a) If any provision of this Agreement is determined by any court of
competent jurisdiction to be invalid or unenforceable in any jurisdiction the
remaining provisions of this Agreement shall not be affected thereby, and the
invalidity or unenforceability in any jurisdiction shall not invalidate or
render unenforceable that provision in any other jurisdiction. It is understood,
however, that the parties intend each provision of this Agreement to be valid
and enforceable and each of them waives all rights to object to any provision of
this Agreement.
(b) This agreement shall be binding upon and inure solely to the
benefit of the parties and their respective successors and permitted assigns,
and shall not be enforceable by or inure to the benefit of any third party.
Except as provided in Section 10, no party may assign its rights or obligations
under this Agreement or any interest in the Escrow Deposit without the written
6
consent of the other parties, and any other purported assignment shall be void.
In no event shall the Escrow Agent be required to act upon, or be bound by, any
notice, instruction, objection or other communication given by a person other
than, nor shall the Escrow Agent be required to deliver the Escrow Deposit to
any person other than, the Company or Purchaser Rep.
(c) This Agreement shall be governed by and construed in accordance
with the law of the State of New York applicable to agreements made and to be
performed in New York.
(d) The state courts of New York and the United States District Courts
for New York shall have exclusive jurisdiction over the parties (and the subject
matter) with respect to any dispute or controversy arising under or in
connection with this Agreement. A summons or complaint or other process in any
such action or proceeding served by mail in accordance with Section 11 of this
Agreement or in such other manner as may be permitted by law shall be valid and
sufficient service.
(e) This Agreement contains a complete statement of all of the
arrangements among the parties with respect to its subject matter and cannot be
changed or terminated orally. Any waiver or modification must be in writing and
executed by all parties.
(f) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument.
(g) The section headings used herein are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
(h) In the event a dispute arises regarding this Agreement, the
prevailing party shall be entitled to its reasonable attorneys' fees and
expenses incurred in addition to any other relief to which it is entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
VASO ACTIVE PHARMACEUTICALS, INC.
By:_________________________________
Name:
Title:
IROQUOIS MASTER FUND, LTD., as Purchaser Rep.
By:_________________________________
Name:
Title:
XXXXXXXX XXXXXX LLP
By:_________________________________
Name:
Title:
8
Acknowledged by:
PURCHASERS:
-----------
IROQUOIS MASTER FUND, LTD.
By:_______________________
Name:
Title:
9
Acknowledged by:
PURCHASERS:
____________________________________
By:_________________________________
Name:
Title:
10
EXHIBIT A
SCHEDULE OF FEES
EXHIBIT B
INTEREST PAYMENT DATES
Vaso Active Pharmaceuticals, Inc.
Securities Purchase Agreement
Article III. Representations and Warranties
Schedule 3.1(g) Capitalization
Class B Class B Class A
Preferred Common Common
--------- ------ ------
Shares Authorized 10,000,000 10,000,000 20,000,000
---------- ---------- ----------
Issued and outstanding - 4,500,000 5,828,613
Shares reserved:
2003 Stock Incentive Plan - - 1,350,000
2003 Non-employee Director Plan - - 900,000
Warrants issued and outstanding - - 435,000
FTN Midwest Securities, Inc. - - 64,935
FTN Midwest Securities, Inc. - - 48,701
2004 Stock Incentive Plan (1) - n/a n/a
2004 Non-employee Director Plan (2) - n/a n/a
2005 Stock Incentive Plan (3) - n/a n/a
2005 Non-employee Director Plan (4) - n/a n/a
Class B Common Convertible into Class A Common - - 4,500,000
---------- ---------- ----------
Shares issued and outstanding and reserved,
except as a result of the purchase and sale
of securities contemplated by the transaction documents - 4,500,000 13,127,249
========== ========== ==========
(1) The Company did not adopt a 2004 Stock Incentive Plan
(2) The Company did not adopt a 2004 Non-employee Director Plan
(3) The Company has not adopted a 2005 Stock Incentive Plan
(4) The Company has not adopted a 2005 Non-employee Director Plan
VASO ACTIVE PHARMACEUTICALS, INC.
SECURITIES PURCHASE AGREEMENT
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SCHEDULE 3.1(T) CERTAIN FEES
Fees
----
Cash Portion:
INITIAL NOTES, $2,500,000, IN AGGREGATE:
Cash portion of fees due upon funding of initial $2,500,000 $225,000
AIR NOTES, $1,875,000, IN AGGREGATE
Maximum additional cash portion of fees due upon closing of future
funding if AIR is exercised (9% multiplied by the amount
of the AIR exercised, if any, payable as funded) $168,750 *
Warrant Portion:
Additional fee consisting of Warrants to purchase
Class A Common Stock of Vaso Active
Pharmaceuticals, Inc.
Issuable upon Issuable upon
closing of closing of
Initial $2,500,000 AIR Exercise
Percent of Proceeds Raised 2.00% 2.00% *
Proceeds to be Raised $2,500,000 $1,875,000
Strike Price $0.77 $0.77
Number of Shares 64,935 48,701 *
(*) All PIPE Placement Fees, both Cash and Warrant portions are due
and payable to FTN on the date(s) of the relevant funding(s) of the
PIPE Transaction.
Vaso Active Pharmaceuticals, Inc.
Securities Purchase Agreement
Article III. Representations and Warranties
Schedule 3.1(aa) Ranking
Indebtedness of the Company senior to or pari passu with the Notes in
right of payment, whether with respect to principal, interest or
upon liquidationor dissolution, or otherwise: NONE
Vaso Active Pharmaceuticals, Inc.
Securities Purchase Agreement
Article III. Representations and Warranties
Schedule 3.1(a) Subsidiaries
Subsidiaries:
NONE
Vaso Active Pharmaceuticals, Inc.
Securities Purchase Agreement
Article III. Representations and Warranties
Schedule 3.1(e) Required Approvals
Required Approvals Waiver of registration rights granted
to Biochemics, Inc. in January 2003
VASO ACTIVE PHARMACEUTICALS, INC.
SECURITIES PURCHASE AGREEMENT
ARTICLE III REPRESENTATIONS AND WARRANTIES
SCHEDULE 3.1(V) REGISTRATION RIGHTS
NUMBER OF SHARES
PERSON/ COMPANY SUBJECT TO RIGHTS STATUS
--------------- ----------------- ------------------------------------------------------
Xxxxxxx Xxxxxxxx 435,000 Underwriter warrants issued in connection with
IPO in Dec 2003
Biochemics, Inc. 4,500,000 * Granted to Biochemics in connection with the
split-off and formation of Vaso Active in January 2003
FTN Midwest Securities, Inc. 64,935 Warrant portion of fees paid in connection with this
financing.
FTN Midwest Securities, Inc. 48,701 Warrant portion of fees payable in the future if
Additional Investment Rights are exercised.
--------------------------
* Registration rights for these shares are subordinated in connection with this
financing.
VASO ACTIVE PHARMACEUTICALS, INC.
Securities Purchase Agreement
Article III Representations and Warranties
Schedule 3.1(j) Pending Litigation
1. Consolidated class action lawsuit (consolidating individual actions filed in
April, May and June 2004) filed in December 2004, in the United States District
Court for the District of Massachusetts entitled In Re Vaso Active
Pharmaceuticals Securities Litigation, Civ. No. 04-10708 (RCL). In addition, the
following two class actions have not been consolidated: Xxxxx Xxxxxxxxxxx v.
Vaso Active Pharmaceuticals, Inc., et al., Civ. No. 04-11101 (RCL) and Xxxxxx
Xxxxxx v. Vaso Active Pharmaceuticals, Inc., et al., 04-10851 (RCL).
2. Derivative action filed in April 2004 in the United State District Court of
Massachusetts entitled XXXXXX XXXXXXXXXXX V. BIOCHEMICS, INC., ET AL., Civ. No.
04-10792 (RCL) (D. Mass.).
3. Derivative action filed in June 2004 in the United States District Court for
the District of Massachusetts entitled XXXXXXX XXXXXXX V. BIOCHEMICS INC., ET
AL., Civ. No. 04-11399 (RCL) (D. Mass.).
4. Derivative action filed in September 2004 in the Court of Chencery fpr the
State of Delaware entitled XXXXXXX XXXXXXXX V. XXXX X. MASIZ, ET AL., Civ. No.
682-N.
NOTE: THE ACTIONS AND PROCEEDINGS LISTED ABOVE ARE DESCRIBED IN THE COMPANY'S
PERIODIC FILINGS WITH THE SEC.
