EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of April
17, 2006, among Xxxxxx Electronics, Inc., a New York corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, 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, as amended (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, securities of the Company as more fully
described in this Agreement.
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 agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Restated Certificate (as defined herein),
and (b) the following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Actual Minimum" means, 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 or conversion in full of all Warrants and shares of Preferred
Stock, ignoring any conversion or exercise limits set forth therein, and
assuming that any previously unconverted shares of Preferred Stock are held
until the third anniversary of the Closing Date and all dividends are paid in
shares of Common Stock until such third anniversary.
"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.
"Business Day" means any day except Saturday, Sunday, any day which shall
be a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers' obligations to pay the Subscription
Amount and (ii) the Company's obligations to deliver the Securities have been
satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $.01 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Ruskin Moscou Faltischek, P.C.
"Conversion Price" shall have the meaning ascribed to such term in the
Restated Certificate.
"Disclosure Schedules" shall have the meaning ascribed to such term in
Section 3.1.
"Effective Date" means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in Section
3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of any such securities (except pursuant to any anti-dilution
provisions of such securities), (c) shares of Common Stock or securities issued
upon exercise of warrants or options issued pursuant to the Consulting Agreement
and the Employment Agreement and (d) securities issued pursuant to acquisitions
or strategic transactions approved by a majority of the disinterested directors,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed to such term
in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term in
Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in Section
5.17.
"Participation Maximum" shall have the meaning ascribed to such term in
Section 4.13.
"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.
"Preferred Stock" means the 4,350 shares of the Company's Series B 8%
Convertible Preferred Stock issued hereunder having the rights, preferences and
privileges set forth in the Restated Certificate.
"Pre-Notice" shall have the meaning ascribed to such term in Section 4.13.
"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.
"Purchaser Party" shall have the meaning ascribed to such term in Section
4.11.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by each Purchaser as provided for in the
Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Restated Certificate" means the Amended and Restated Certificate of
Incorporation, substantially in the form of Exhibit A attached hereto, which the
Company shall file immediately prior to the Closing with the Secretary of State
of the State of New York.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule 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.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Preferred Stock, the Warrants, the Warrant Shares
and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Nasdaq Capital Market (or any successor
entity) from the shareholders of the Company with respect to the transactions
contemplated by the Transaction Documents, including the issuance of all of the
Underlying Shares in excess of 19.99% of the issued and outstanding Common Stock
on the Closing Date.
"Short Sales" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock).
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the aggregate
amount to be paid for the Preferred Stock purchased hereunder as specified below
such Purchaser's name on the signature page of this Agreement and next to the
heading "Subscription Amount", in United States Dollars and in immediately
available funds.
"Subsequent Financing" shall have the meaning ascribed to such term in
Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed to such term
in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth on Schedule
3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a Trading
Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
Capital Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
"Transaction Documents" means this Agreement, the Restated Certificate, the
Warrants, the Registration Rights Agreement, the Employment Agreement, the
Consulting Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issued and issuable
upon conversion or redemption of the Preferred Stock, upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of dividends on the
Preferred Stock in accordance with the terms of the Restated Certificate.
"VWAP" 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 a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent 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 the Holder and reasonably
acceptable to the Company.
"Warrants" means collectively the Common Stock purchase warrants, in the
form of Exhibit C delivered to the Purchasers at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to 7 years. "Warrant Shares" means the shares of Common
Stock issuable upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally and not
jointly, $4,000,000 of shares of Preferred Stock with an aggregated Stated Value
equal to such Purchaser's Subscription Amount and Warrants as determined by
pursuant to Section 2.2(a). The aggregate number of shares of Preferred Stock
sold hereunder shall be 4,000, not including any shares of Preferred Stock to be
issued in connection with the placement agency agreement referred to in Section
2.3(b)(ix) hereof. Each Purchaser shall deliver to the Company via wire transfer
or a certified check of immediately available funds equal to their Subscription
Amount and the Company shall deliver to each Purchaser their respective shares
of Preferred Stock and Warrants as determined pursuant to Section 2.2(a) and the
other items set forth in Section 2.2 issuable at the Closing. Upon satisfaction
of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at
the offices of FW, or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in form and substance
reasonably acceptable to the parties and their counsel;
(iii) a certificate evidencing a number of shares of Preferred Stock
equal to such Purchaser's Subscription Amount divided by the
Stated Value, registered in the name of such Purchaser;
(iv) a Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 30% of such
Purchaser's Subscription Amount divided by $.70 with an exercise
price equal to $1.40, subject to adjustment therein;
(v) Reserved; and
(vi) the Registration Rights Agreement duly executed by the Company.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount as to the applicable Closing by
wire transfer; and
(iii) the Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed at or prior to the Closing Date shall
have been performed;
(iii) Shareholder Approval has been obtained in connection with
transactions contemplated by the Transaction Documents; and
(iv) the delivery by the Purchasers of the items set forth in Section
2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required
to be performed at or prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(iv) the Company shall have entered into an employment agreement with
D. Xxxxxx Xxxxxxxxx, substantially in the form of Exhibit D
hereto (the "Employment Agreement")
(v) the Company shall have entered into a consulting agreement with
Trinity Investment Partners, LLC ("Trinity"), substantially in
the form of Exhibit E hereto (the "Consulting Agreement");
(vi) the Restated Certificate shall have been filed with the Secretary
of State of the State of New York;
vii) D. Xxxxxx Xxxxxxxxx, Xxx Xxxxx, Xxxxxxx Xxxxxx, and three other
Directors to be appointed by Trinity shall have each been
appointed as members of the Board of Directors of the Company;
(viii) all parties to severance agreements with the Company shall have
agreed that the transactions contemplated hereby and any
purported tender offer by Modern Technology Group, Inc. publicly
announced prior to the Closing shall not constitute a Change of
Control or Potential Change of Control as defined therein;
(ix) the Company shall have entered into a placement agent agreement
with vFinance, in substantially the form annexed hereto as
Exhibit F, providing for a fee equal to 10% of the aggregate
Subscription Amounts payable in Preferred Stock;
(x) there shall have been no Material Adverse Effect with respect to
the Company since the date hereof
(xi) Shareholder Approval has been obtained in connection with
transactions contemplated by the Transaction Documents;
(xii) from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally
as reported by Bloomberg L.P. shall not have been suspended or
limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable
to purchase the Preferred Stock at the Closing;
(xiii) the Company shall have in place directors and officers
insurance coverage acceptable to D. Xxxxxx Xxxxxxxxx, as the new
Chairman of the Board; and
(xiv) the Company shall obtain and deliver all third party consents
identified in this Agreement (including the Disclosure
Schedules).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities (except such rights that have been properly
waived or complied with). If the Company has no subsidiaries, then all
other references in the Transaction Documents to the Subsidiaries or any of
them will be disregarded.
(b) Organization and Qualification. The Company and each of 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 or default 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 have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(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 hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, its board of
directors or its stockholders in connection therewith other than in
connection with the Required Approvals. 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 and thereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby 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, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, 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) or other understanding 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) subject to the Required Approvals, conflict
with or 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 in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Except as set forth in Schedule
3.1(e), 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 (i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale
of the Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby, (iv) the filing of Form D
with the Commission and such filings as are required to be made under
applicable state securities laws and (v) Shareholder Approval
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Underlying
Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company will, at
Closing, have reserved from its duly authorized capital stock a number of
shares of Common Stock for issuance of the Underlying Shares at least equal
to the Actual Minimum.
(g) Capitalization. The capitalization of the Company is as set forth
on Schedule 3.1(g). The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plan and pursuant to the
conversion or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act. 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 or as set forth on Schedule
3.1(g). Except as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable 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 Common Stock
Equivalents. The issuance 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 any of such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except as set forth in this Agreement, no further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Securities.
There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company's capital stock to which the Company
is a party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and 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 or
regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the "SEC Reports") 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. As of their
respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, as applicable,
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 the light
of the circumstances under which they were made, not misleading. 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 United States 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
except that unaudited financial statements may not contain all footnotes
required by GAAP, 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; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within
the SEC Reports, except as specifically disclosed in a subsequent SEC
Report, (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 financial
statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting,
(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. Except for the issuance of the
Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least 1
Trading Day prior to the date that this representation is made.
(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, have
or reasonably be expected to 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 which could reasonably be expected to result in a Material
Adverse Effect. Except as set forth on Schedule 3.1(k), none of the
Company's or its Subsidiaries' employees is a member of a union that
relates to such employee's relationship with the Company, and neither the
Company or any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) Compliance. Except as set forth on Schedule 3.1(l), 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 applicable to its business and all such laws that affect the
environment, except in each case as could not have 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 have or reasonably be expected to
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.
(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
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in 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, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar
rights 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
notice (written or otherwise) that the Intellectual Property Rights 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. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(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, including, but not
limited to, directors and officers insurance coverage at least equal to the
aggregate Subscription Amount. 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
the 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, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. 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. The Company
has established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. The Company's
certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by
the Company's most recently filed periodic report under the Exchange Act
(such date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no changes in the Company's internal
control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(s) Certain Fees. Except as set forth in the Transaction Documents, 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 the Transaction Documents. 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 the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, 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. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. Other than the parties to the Registration
Rights Agreement and the Registration Rights Agreement executed in
connection with the Employment Agreement and the Consulting Agreement, no
Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
except as disclosed in SEC Reports, the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor
has the Company received any notification that the Commission is
contemplating terminating such registration. Except as set forth on
Schedule 3.1(w), the Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading
Market.
(x) 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 as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
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 it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties 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. The Company acknowledges and agrees that 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 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions of any Trading Market on which
any of the securities of the Company are listed or designated.
(aa) Solvency. Except as set forth on Schedule 3.1(aa), based on the
financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the fair saleable value of the Company's 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; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) 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 liabilities 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).
The Company has no knowledge of any facts or circumstances which lead it to
believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. Schedule 3.1(aa) sets forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon (or received appropriate extensions
of time to pay the same), and the Company has no knowledge of a tax
deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-K for the year ending October 29, 2006, are a registered
public accounting firm as required by the Securities Act.
(ff) Seniority. As of the Closing Date, except for 600 shares of the
Company's 8.5% Cumulative Convertible Preferred Stock, no Indebtedness or
other equity of the Company is senior to the Preferred Stock in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to
the property covered thereby).
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and, except as set forth on
Schedule 3.1(gg), the Company is current with respect to any fees owed to
its accountants and lawyers.
(hh) 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 the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(f) and 4.16 hereof), it is understood and
acknowledged by the Company (i) that none of the Purchasers have been asked
to agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market or
other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter-parties in "derivative" transactions to which any such Purchaser is
a party, directly or indirectly, presently may have a "short" position in
the Common Stock, and (iv) that each Purchaser shall not be deemed to have
any affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges
that (a) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Underlying
Shares deliverable with respect to Securities are being determined and (b)
such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that
the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(jj) Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Securities, (ii) sold, bid for, purchased, or, paid
any compensation for soliciting purchases of, any of the Securities, or
(iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company, other than, in the
case of each of clauses (ii) and (iii), compensation paid to the Company's
placement agent in connection with the placement of the Securities.
(kk) Form S-3 Eligibility. The Company is eligible to register the
resale of the Underlying Shares for resale by the Purchaser on Form S-3
promulgated under the Securities Act.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date 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 full right, corporate 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 execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which it
is a party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it converts any shares of Preferred Stock or exercises any Warrants, it
will be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) 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.
(e) 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.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any disposition,
including Short Sales, in the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date
hereof ("Discussion Time"). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this
transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities 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 and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in the following
form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [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 ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such 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 legal counsel 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, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
or (ii) following any sale of such Underlying Shares pursuant to Rule 144,
or (iii) if such Underlying Shares 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 a legal opinion to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect the
removal of the legend hereunder. If all or any shares of Preferred Stock or
any portion of a Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the resale
of the Underlying Shares, or if such Underlying Shares may be sold under
Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Underlying
Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to such Purchaser
a certificate representing such shares 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 this Section. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted
by the transfer agent of the Company to the Purchasers by crediting the
account of the Purchaser's prime broker with the Depository Trust Company
System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day 5 Trading Days after such damages have begun to accrue) for
each Trading Day commencing on the second Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may 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 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 the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
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. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) 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 the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
4.4 Integration. The Company shall not 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 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Restated Certificate set forth the totality of the procedures required of the
Purchasers in order to exercise the Warrants or convert the Preferred Stock. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants or convert their Preferred Stock.
The Company shall honor exercises of the Warrants and conversions of the
Preferred Stock and shall deliver Underlying Shares in accordance with the
terms, conditions and time periods set forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m.
(New York City time) on the Trading Day immediately following the date hereof,
issue a press release in connection with the execution of this Agreement, and
shall as soon as practicable following the execution of this Agreement (and in
any event within the timeframe provided under applicable law) issue a Current
Report on Form 8-K, disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, 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 or 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 (i) as required by federal securities law in
connection with (A) any registration statement contemplated by the Registration
Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall, where practicable, provide the Purchasers with prior notice of
such disclosure permitted under this subclause (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover 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 Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
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
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any other stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable and actual legal and other expenses
(including the cost of any investigation preparation and travel in connection
therewith, provided that appropriate documentation is supplied regarding such
items) incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement, except if such claim arises primarily from a breach of such
Purchaser's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, shareholders, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than on such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser in this Agreement or in the other Transaction Documents.
4.12 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.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 130% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common
Stock previously issued pursuant to the Transaction Documents, then the
Board of Directors of the Company shall use commercially reasonable efforts
to amend the Company's certificate or articles of incorporation to increase
the number of authorized but unissued shares of Common Stock to at least
the Actual Minimum at such time (minus the number of shares of Common Stock
previously issued pursuant to the Transaction Documents), as soon as
possible and in any event not later than the 120th day after such date;
provided that the Company will not be required at any time to authorize a
number of shares of Common Stock greater than the maximum remaining number
of shares of Common Stock that could possibly be issued after such time
pursuant to the Transaction Documents.
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Actual Minimum on the date
of such application, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on such Trading Market as soon as
possible thereafter, (iii) provide to the Purchasers evidence of such
listing, and (iv) maintain the listing of such Common Stock on any date at
least equal to the Actual Minimum on such date on such Trading Market or
another Trading Market. In addition, the Company shall hold a special
meeting of shareholders (which may also be at the annual meeting of
shareholders) at the earliest practical date, but in no event later than
August 15, 2006, for the purpose of obtaining Shareholder Approval, with
the recommendation of the Company's Board of Directors that such proposal
be approved, and the Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals
in such proxy statement and all management-appointed proxyholders shall
vote their proxies in favor of such proposal. The Company shall file a
proxy statement for such purpose with the Commission no later than the
fifth Trading Day following the receipt by the Company of a fairness
opinion in respect of the transactions contemplated by this Agreement.
4.13 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to participate
in up to an amount of the Subsequent Financing equal to 100% of the
Subsequent Financing (the "Participation Maximum") on the same terms,
conditions and price provided for in the Subsequent Financing.
(b) At least 10 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for a Subsequent Financing Notice, the Company shall promptly, but no later
than 3 Trading Days after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder, the Person or Persons
through or with whom such Subsequent Financing is proposed to be effected,
and attached to which shall be a term sheet or similar document relating
thereto.
(c) Any Purchaser desiring to participate in such Subsequent Financing
must provide written notice to the Company by not later than 5:00 p.m. (New
York City time) on the 10th Trading Day after such Purchaser has received
the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser's participation, and that
the Purchaser has such funds ready, willing, and available for investment
on the terms set forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 10th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not
elect to participate.
(d) If by 5:00 p.m. (New York City time) on the 10th Trading Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less
than the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the terms and
with the Persons set forth in the Subsequent Financing Notice.
(e) If by 5:00 p.m. (New York City time) on the 10th Trading Day after
all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each
such Purchaser shall have the right to purchase the greater of (a) their
Pro Rata Portion (as defined below) of the Participation Maximum and (b)
the difference between the Participation Maximum and the aggregate amount
of participation by all other Purchasers. "Pro Rata Portion" is the ratio
of (x) the Subscription Amount of Securities purchased on the Closing Date
by a Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by all Purchasers participating under this Section 4.13.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of (i) an Exempt Issuance or (ii) a firm commitment underwritten
public offering of Common Stock with a nationally recognized and reputable
investment bank with gross proceeds of at least $20,000,000.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents; provided, however, the 90 day period set forth
in this Section 4.14 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, or (ii) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the
Underlying Shares.
(b) From the date hereof until such time as the Purchasers hold less
than 10% of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing involving
a "Variable Rate Transaction". The term "Variable Rate Transaction" shall
mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable
for, or include the right to receive additional shares of Common Stock
either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for
the shares of Common Stock at any time after the initial issuance of such
debt or equity securities, or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.
(c) Unless Shareholder Approval has been obtained and deemed
effective, neither the Company nor any Subsidiary shall sell or grant any
option to purchase or sell or grant any right to reprice its securities, or
otherwise dispose of or issue (or announce any sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective
price per share that is lower than the highest of the then conversion price
of the Preferred Stock or the then exercise price of the Warrants (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share that is lower than the exercise price
of the Warrants, such issuance shall be deemed to have occurred for less
than the exercise price of the Warrants). Any Purchaser shall be entitled
to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.
(d) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.17 Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 Capital Changes. Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the shares of Preferred Stock. In
addition, the Corporation shall not redeem more than a de minimis number of
Junior Securities (as defined in the Restated Certificate) other than as to
repurchases of Common Stock or Common Stock Equivalents from departing officers
and directors of the Corporation, provided that, while any of the Preferred
Stock remains outstanding, such repurchases shall not exceed an aggregate of
$100,000 from all officers and directors.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
August 31, 2006; provided, however, that no such termination will affect the
right of any party to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse
vFinance, Inc. ("vFinance") the non-accountable sum of $50,000, for its legal
fees and expenses. The Company shall deliver, prior to the Closing, a completed
and executed copy of the Closing Statement, attached hereto as Annex A. If,
following execution of this Agreement, the Closing does not occur within six
months of the date hereof solely as a result of the acceptance by, or consent
of, the Board of Directors and/or shareholders of the Company of or relating to
an offer from a third party to purchase a majority in interest of the
outstanding shares of common stock of the Company (or other similar transaction
resulting in a change of control including, without limitation, by way of merger
where the Company has accepted or consented to such transaction), then the
Company will pay a breakup fee to the Purchasers and vFinance, aggregating
$150,000; payable $50,000 to DKR Oasis; $50,000 to vFinance and $50,000 to FW;
provided further, however, that the payment of $150,000 shall not be made in
connection with the Schedule TO filed by Modern Technology Corp. on April 5,
2006 and the related tender offer. 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 delivery of any Securities to the Purchasers.
5.3 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.
5.4 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 (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) 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 set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision 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 any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 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 each Purchaser (other than by merger). Any
Purchaser may assign any or all of 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 of the Transaction Documents that apply to the
"Purchasers".
5.8 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 as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents 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 this Agreement and
any other 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
State of New York, County of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the State
of New York, County of New York 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
or is an inconvenient venue for such proceeding. 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 other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable and actual attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 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 or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other 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; provided,
however, in the case of a rescission of a conversion of the Preferred Stock or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
5.14 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 (in the case of mutilation), 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. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
5.15 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 and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights 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, 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.
5.17 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 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.
5.18 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 or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other 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 Documents. 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 has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW
does not represent all of the Purchasers but only vFinance. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
[SIGNATURE PAGE FOLLOWS]
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.
XXXXXX ELECTRONICS, INC. Address for Notice:
-------------------
By:/s/Xxxxxxx X. Xxxxx 000 Xxxxx Xxxxxx
---------------------------------- Xxxxxxxxx, XX 00000
Name:Xxxxxxx X. Xxxxx
Title: Chairman
With a copy to (which shall not constitute notice):
Ruskin, Moscou Faltishcek, P.C.
0000 Xxxxxxx Xxxxx
Xxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxxx X. Xxxxxxxx
Signature of Authorized Signatory of Purchaser: /s/Xxxxxx X. Xxxxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $50,000
Shares of Preferred Stock: 50
Warrant Shares: 21,428.5
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxx Xxxxxx Xxxxxxxxx
Signature of Authorized Signatory of Purchaser: /s/Xxxxx Xxxxxx Xxxxxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory:
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $50,000
Shares of Preferred Stock: 50
Warrant Shares: 21,428.5
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxxxx X. Xxxxxx
Signature of Authorized Signatory of Purchaser: /s/ Xxxxxxx X. Xxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $50,000
Shares of Preferred Stock: 50
Warrant Shares: 21,428.5
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: DKR SoundShore Oasis Fund Ltd.
Signature of Authorized Signatory of Purchaser: /s/Xxxxxxx Xxxxxx
Name of Authorized Signatory: Xxxxxxx Xxxxxx
Title of Authorized Signatory: Director
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:$3,000,000
Shares of Preferred Stock: 3,000
Warrant Shares: 1,285,714.3
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxx Xxxxxxxx
Signature of Authorized Signatory of Purchaser: /s/ Xxxxx Xxxxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $150,000
Shares of Preferred Stock: 150
Warrant Shares: 64,285.7
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Harborview Master Fund L.P.
Signature of Authorized Signatory of Purchaser: /s/
Name of Authorized Signatory: Navigator Management Ltd.
Title of Authorized Signatory: Authorized Signatory
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $500,000
Shares of Preferred Stock: 500
Warrant Shares: 214,285.7
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxxx X. Xxxxx
Signature of Authorized Signatory of Purchaser: /s/ Xxxxxx X. Xxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $100,000
Shares of Preferred Stock: 100
Warrant Shares: 42,857.1
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxx X. Xxxxxx
Signature of Authorized Signatory of Purchaser: /s/ Xxxxx X. Xxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $50,000
Shares of Preferred Stock: 50
Warrant Shares:21,428.5
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO HRVE SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Xxxxxx Xxxxxxxxx
Signature of Authorized Signatory of Purchaser: /s/ Xxxxxx Xxxxxxxxx
Name of Authorized Signatory:
Title of Authorized Signatory: __________________________
Email Address of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Fax Number of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Notice of Purchaser: [ON FILE WITH XXXXXX ELECTRONICS, INC.]
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: $50,000
Shares of Preferred Stock: 50
Warrant Shares: 21,428.5
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase $4,000,000 of Preferred Stock and Warrants
from Xxxxxx Electronics, Inc., a New York corporation (the "Company"). All funds
will be wired into a trust account maintained by Ruskin Moscou Faltischek, P.C.,
counsel to the Company. All funds will be disbursed in accordance with this
Closing Statement.
Disbursement Date: ________, 2006
I. PURCHASE PRICE
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
Vfinance, Inc. $50,000
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
XXXXXX ELECTRONICS, INC.
PURSUANT TO SECTION 805 OF THE
BUSINESS CORPORATION LAW
The undersigned, Xxxxxxxx X. Xxxx and Xxxxxx X. Xxxxxxxxx, being the
President and Secretary, respectively, of Xxxxxx Electronics, Inc., a
corporation organized and existing under the laws of the State of New York,
pursuant to Section 805 of the Business Corporation Law of New York, do hereby
certify:
1. The name of the corporation is Xxxxxx Electronics, Inc. (the
"Corporation").
2. The Certificate of Incorporation of Xxxxxx Electronics, Inc. was filed
by the Department of State on the 10th day of January, 1946, under the name of
Xxxxxx Radio Company, Inc. A restated Certificate of Incorporation was filed in
the Department of State on December 8, 1967.
3. The Corporation is authorized to issue 10,010,000 shares of stock
consisting of 10,000 shares of eight and one-half (8.5%) percent of cumulative
convertible preferred stock, of the par value of $1,000 per share ("8.5%
Cumulative Convertible Preferred Stock") and 10,000,000 common shares of the par
value of $.01 per share ("Common Stock").
4. The Certificate of Incorporation is hereby amended to:
(a) Increase the total authorized capital of the Corporation from
10,010,000 shares of stock consisting of 10,000 shares of 8.5% Cumulative
Convertible Preferred Stock and 10,000,000 shares of Common Stock to an
aggregate of 30,014,350 shares, par value $.01 per share, consisting of:
(i) 30,000,000 shares of Common Stock
(ii) 10,000 shares of 8.5% Cumulative Convertible Preferred Stock; and
(iii) 4,350 shares of Series B 8% Convertible Preferred Stock.
(b) Add a provision stating the number, designation, relative rights,
preferences and limitations of preferred shares Series B 8% Convertible
Preferred Stock;
(c) Modify the purpose for which the Corporation was formed to state that
the Corporation may engage in any lawful activity for which corporations may be
organized under the BCL and that it is not formed to engage in any act or
activity requiring consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.
(d) Modify the location of the office of the Corporation;
(e) Add a provision stating that the Company's Board of Directors is
authorized to adopt and implement such anti-takeover provisions as the Board of
Directors deems in the exercise of its fiduciary duties, under the circumstances
existing at the time, in the best interests of Company's shareholders, which
provision shall not be amended by the shareholders absent the vote of the
holders of at least sixty-six and two-thirds (66 2/3%) percent of the issued and
outstanding common stock. If an anti-takeover provision is adopted by the Board
of Directors without prior shareholder approval, such provision shall provide
that it will expire unless ratified by the shareholders within one year of
adoption.
5. The amendments to the Certificate of Incorporation of the Corporation
set forth in Section 4 above were authorized in accordance with Section 803(a)
of the BCL, by unanimous written consent of the Board of Directors pursuant to
Section 708(b) of the BCL, and by the vote of a majority of all outstanding
shares entitled to vote thereon at a meeting of the shareholders duly called.
6. The text of the Certificate of Incorporation as amended heretofore, is
hereby restated as further amended to read as herein set forth in full:
FIRST: The name of the Corporation shall be Xxxxxx Electronics, Inc.
SECOND: The Corporation is formed to engage in any lawful act or activity
for which corporations may be organized under the Business Corporation Law,
provided that it is not formed to engage in any act or activity requiring the
consent or approval of any state official, department, board, agency, or other
body, without such consent first being obtained.
THIRD:
(a) The total number of shares which the Corporation is authorized to issue
is 30,014,350, consisting of 10,000 shares of eight and one-half (8.5%) percent
cumulative convertible preferred stock, of the par value of $1,000 per share
("8.5% Cumulative Convertible Preferred Stock"), 4,350 shares of Series B Eight
(8%) percent convertible preferred stock, of the par value of $.01 per share and
a stated value of $1,000 per share ("Series B 8% Convertible Preferred Stock")
and 10,000,000 common shares of the par value of $.01 per share ("Common
Stock").
(b) The designation, relative rights, preferences and limitations of shares
of each class shall be as follows:
I. SERIES B 8% CONVERTIBLE PREFERRED STOCK
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. For the purposes hereof, the following
terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section 7(e).
"Bankruptcy Event" means any of the following events: (a) the Corporation
or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) thereof 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 Corporation or any Significant Subsidiary thereof; (b) there is
commenced against the Corporation or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement; (c)
the Corporation or any Significant Subsidiary thereof is adjudicated insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof
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 calendar days
after such appointment; (e) the Corporation or any Significant Subsidiary
thereof makes a general assignment for the benefit of creditors; (f) the
Corporation or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or (g) the Corporation or any Significant Subsidiary thereof, 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.
"Base Conversion Price" shall have the meaning set forth in Section 7(b).
"Business Day" means any day except Saturday, Sunday, any day which shall
be a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Buy-In" shall have the meaning set forth in Section 6(e)(iii).
"Change of Control Transaction" means the occurrence after the date hereof
of any of (i) an acquisition after the date hereof by an individual, legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Corporation, by contract or otherwise) of in
excess of 33% of the voting securities of the Corporation (other than by means
of conversion or exercise of Preferred Stock and the Securities issued together
with the Preferred Stock), or (ii) the Corporation merges into or consolidates
with any other Person, or any Person merges into or consolidates with the
Corporation and, after giving effect to such transaction, the shareholders of
the Corporation immediately prior to such transaction own less than 68% of the
aggregate voting power of the Corporation or the successor entity of such
transaction, or (iii) the Corporation sells or transfers all or substantially
all of its assets to another Person and the shareholders of the Corporation
immediately prior to such transaction own less than 68% of the aggregate voting
power of the acquiring entity immediately after the transaction, or (iv) a
replacement at one time or within a one year period of more than one-half of the
members of the Corporation's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Corporation of an agreement to which the
Corporation is a party or by which it is bound, providing for any of the events
set forth in clauses (i) through (iv) above.
"Closing Date" means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto and all
conditions precedent to (i) the Holders' obligations to pay the Subscription
Amount and (ii) the Corporation's obligations to deliver the Securities have
been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Corporation's common stock, par value $.01 per
share, and stock of any other class of securities into which such securities may
hereafter be reclassified or changed into.
"Common Stock Equivalents" means any securities of the Corporation or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Conversion Amount" means the sum of the Stated Value at issue.
"Conversion Date" shall have the meaning set forth in Section 6(a).
"Conversion Price" shall have the meaning set forth in Section 6(b).
"Conversion Shares" means, collectively, the shares of Common Stock
issuable upon conversion of the shares of Preferred Stock in accordance with the
terms hereof.
"Conversion Shares Registration Statement" means a registration statement
that registers the resale of all Conversion Shares of the Holder, who shall be
named as a "selling shareholder" therein and meets the requirements of the
Registration Rights Agreement.
"Dilutive Issuance" shall have the meaning set forth in Section 7(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
7(b).
"Dividend Payment Date" shall have the meaning set forth in Section 3(a).
"Dividend Share Amount" shall have the meaning set forth in Section 3(a).
"Effective Date" means the date that the Conversion Shares Registration
Statement is declared effective by the Commission.
"Equity Conditions" means, during the period in question, (i) the
Corporation shall have duly honored all conversions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder on or
prior to the dates so requested or required, if any, (ii) the Corporation shall
have paid all liquidated damages and other amounts owing to the Holder in
respect of the Preferred Stock, (iii) there is an effective Conversion Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock issuable
pursuant to the Transaction Documents (and the Corporation believes, in good
faith, that such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are listed for trading on
such Trading Market (and the Corporation believes, in good faith, that trading
of the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized, but
unissued and otherwise unreserved, shares of Common Stock for the issuance of
all of the shares of Common Stock issuable pursuant to the Transaction
Documents, (vi) RESERVED, (vii) the issuance of the shares in question (or, in
the case of a redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitations set forth in
Section 6(c) herein, (viii) there has been no public announcement of a pending
or proposed Fundamental Transaction or Change of Control Transaction that has
not been consummated and (ix) no Holder is in possession of any information
furnished by the Corporation that constitutes, or may constitute, material
non-public information.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Corporation pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Corporation or a majority of the members of a
committee of non-employee directors established for such purpose, (b) securities
upon the exercise of or conversion of any securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of the Purchase Agreement,
provided that such securities have not been amended since the date of the
Purchase Agreement to increase the number of such securities or to decrease the
exercise or conversion price of any such securities, (c) shares of Common Stock
or securities issued upon exercise of warrants or options issued pursuant to the
Consulting Agreement and the Employment Agreement and (d) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors, provided that any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Corporation and shall provide to
the Corporation additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Corporation is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.
"Fundamental Transaction" shall have the meaning set forth in Section 7(e).
"Holder" shall have the meaning given such term in Section 2.
"Junior Securities" means the Common Stock and all other Common Stock
Equivalents of the Corporation other than those securities which are explicitly
senior or pari passu to the Preferred Stock in dividend rights or liquidation
preference.
"Liquidation" shall have the meaning set forth in Section 5.
"New York Courts" shall have the meaning set forth in Section 11(d).
"Notice of Conversion" shall have the meaning set forth in Section 6(a).
"Original Issue Date" means the date of the first issuance of any shares of
the Preferred Stock regardless of the number of transfers of any particular
shares of Preferred Stock and regardless of the number of certificates which may
be issued to evidence such Preferred Stock.
"Permitted Indebtedness" means (a) the Indebtedness existing on the
Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase
Agreement and (b) bank lines of credit, lease obligations and purchase money
indebtedness of up to $20,000,000, in the aggregate, incurred in connection with
the acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets.
"Permitted Lien" means the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Corporation) have been established in accordance with GAAP; (b) Liens imposed by
law which were incurred in the ordinary course of the Corporation's business,
such as carriers', warehousemen's and mechanics' Liens, statutory landlords'
Liens, and other similar Liens arising in the ordinary course of the
Corporation's business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Corporation and
its consolidated Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject to
such Lien and (c) Liens incurred in connection with Permitted Indebtedness under
clause (b) thereunder, provided that such Liens are not secured by assets of the
Corporation or its Subsidiaries other than the assets so acquired or leased.
"Preferred Stock" shall have the meaning set forth in Section 2.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
the Original Issue Date, to which the Corporation and the original Holders are
parties, as amended, modified or supplemented from time to time in accordance
with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of the Purchase Agreement, to which the Corporation and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Share Delivery Date" shall have the meaning set forth in Section 6(e).
"Stated Value" shall have the meaning set forth in Section 2.
"Subscription Amount" means, as to each Purchaser, the amount in United
States Dollars and in immediately available funds to be paid for the Preferred
Stock purchased pursuant to the Purchase Agreement as specified below such
Purchaser's name on the signature page of the Purchase Agreement and next to the
heading "Subscription Amount."
"Subsidiary" shall have the meaning set forth in the Purchase Agreement.
"Trading Day" means a day on which the principal Trading Market is open for
business.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq National Market
or the New York Stock Exchange.
"Transaction Documents" shall have the meaning set forth in the Purchase
Agreement.
"VWAP" 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 a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent 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 the Purchasers and
reasonably acceptable to the Corporation.
Section 2. Designation, Amount and Par Value. The series of preferred stock
shall be designated as its Series B 8% Convertible Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be up to 4,350
(which shall not be subject to increase without the written consent of all of
the holders of the Preferred Stock (each, a "Holder" and collectively, the
"Holders")). Each share of Preferred Stock shall have a par value of $.01 per
share and a stated value equal to $1,000, subject to increase set forth in
Section 3(a) below (the "Stated Value").
Section 3. Dividends.
a) Dividends in Cash or in Kind. Holders shall be entitled to receive, and
the Corporation shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) of 8% per annum (subject to increase
pursuant to Section 9(b)), payable annually on March 1 of each year, beginning
on March 1, 2007 and on each Conversion Date (except that, if such date is not a
Trading Day, the payment date shall be the next succeeding Trading Day) (each
such date, a "Dividend Payment Date") in cash or duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock as set forth in
this Section 3(a), or a combination thereof (the amount to be paid in shares of
Common Stock, the "Dividend Share Amount"). The Common Stock shall be valued
solely for such purpose at 90% of the average of the VWAPs for the 20
consecutive Trading Days ending on the Trading Day that is immediately prior to
the Dividend Payment Date. The form of dividend payments shall be at the
discretion of the Corporation, provided that the Corporation may elect to
provide such dividend in Common Stock only if the Equity Conditions are met. The
Holders shall have the same rights and remedies with respect to the delivery of
any such shares as if such shares were being issued pursuant to Section 6. On
the Closing Date the Corporation shall have notified the Holders whether or not
it may legally pay cash dividends as of the Closing Date. The Corporation shall
promptly notify the Holders at any time the Corporation shall become able or
unable, as the case may be, to legally pay cash dividends. If at any time the
Corporation has the right to pay dividends in cash or Common Stock, the
Corporation must provide the Holder with at least 20 Trading Days' notice of its
election to pay a regularly scheduled dividend in Common Stock (the Corporation
may indicate in such notice that the election contained in such notice shall
continue for later periods until revised by a subsequent notice). Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date, and shall be deemed to
accrue from such date whether or not earned or declared and whether or not there
are profits, surplus or other funds of the Corporation legally available for the
payment of dividends. Except as otherwise provided herein, if at any time the
Corporation pays dividends partially in cash and partially in shares, then such
payment shall be distributed ratably among the Holders based upon the number of
shares of Preferred Stock held by each Holder on such Dividend Payment Date. Any
dividends, whether paid in cash or shares of Common Stock, that are not paid
within three Trading Days following a Dividend Payment Date shall continue to
accrue and shall entail a late fee, which must be paid in cash, at the rate of
18% per annum or the lesser rate permitted by applicable law (such fees to
accrue daily, from the Dividend Payment Date through and including the date of
payment). If at any time the Corporation delivers a notice to the Holders of its
election to pay the dividends in shares of Common Stock, the Corporation shall
timely file a prospectus supplement pursuant to Rule 424 disclosing such
election.
b) So long as any Preferred Stock shall remain outstanding, neither the
Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities except as expressly
permitted by Section 9(a)(viii). So long as any Preferred Stock shall remain
outstanding, neither the Corporation nor any Subsidiary thereof shall directly
or indirectly pay or declare any dividend or make any distribution upon (other
than a dividend or distribution described in Section 6 or dividends due and paid
in the ordinary course on preferred stock of the Corporation at such times when
the Corporation is in compliance with its payment and other obligations
hereunder), nor shall any distribution be made in respect of, any Junior
Securities as long as any dividends due on the Preferred Stock remain unpaid,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock.
Section 4. Voting Rights. Except as otherwise provided herein or as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, as long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the Holders of a majority
of the then outstanding shares of the Preferred Stock, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or
alter or amend this Restated Certificate, (b) authorize or create any class of
stock ranking as to dividends, redemption or distribution of assets upon a
Liquidation (as defined in Section 5) senior to or otherwise pari passu with the
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in any manner that adversely affects any rights of the Holders, (d)
increase the authorized number of shares of Preferred Stock, or (e) enter into
any agreement with respect to any of the foregoing.
Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets, whether capital or surplus, of
the Corporation an amount equal to any accrued and unpaid dividends thereon and
any other fees or liquidated damages owing thereon, for each share of Preferred
Stock before any distribution or payment shall be made to the holders of any
Junior Securities, and shall thereafter receive any distributions together with
the Common Stock on an as-converted basis. A Fundamental Transaction or Change
of Control Transaction shall not be deemed a Liquidation. The Corporation shall
mail written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each Holder.
Section 6. Conversion.
a) Conversions at Option of Holder. Each share of Preferred Stock shall be
convertible at the option of the Holder, at any time and from time to time from
and after the Original Issue Date into that number of shares of Common Stock
(subject to the limitations set forth in Section 6(c)) determined by dividing
the Stated Value of such share of Preferred Stock by the Conversion Price.
Holders shall effect conversions by providing the Corporation with the form of
conversion notice attached hereto as Annex A (a "Notice of Conversion"). Each
Notice of Conversion shall specify the number of shares of Preferred Stock to be
converted, the number of shares of Preferred Stock owned prior to the conversion
at issue, the number of shares of Preferred Stock owned subsequent to the
conversion at issue and the date on which such conversion is to be effected,
which date may not be prior to the date the Holder delivers by facsimile such
Notice of Conversion to the Corporation (the "Conversion Date"). If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical error. To
effect conversions, as the case may be, of shares of Preferred Stock, a Holder
shall not be required to surrender the certificate(s) representing such shares
of Preferred Stock to the Corporation unless all of the shares of Preferred
Stock represented thereby are so converted, in which case the Holder shall
deliver the certificate representing such shares of Preferred Stock promptly
following the Conversion Date at issue. Shares of Preferred Stock converted into
Common Stock or redeemed in accordance with the terms hereof shall be canceled
and shall not be reissued.
b) Conversion Price. The conversion price for the Preferred Stock shall
equal $.70, subject to adjustment herein (the "Conversion Price").
c) Beneficial Ownership Limitation. The Corporation shall not effect any
conversion of the Preferred Stock, and a Holder shall not have the right to
convert any portion of the Preferred Stock, to the extent that, after giving
effect to the conversion set forth on the applicable Notice of Conversion, such
Holder (together with such Holder's Affiliates, and any other person or entity
acting as a group together with such Holder or any of such Holder's Affiliates)
would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by such Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon conversion of the Preferred
Stock with respect to which such determination is being made, but shall exclude
the number of shares of Common Stock which are issuable upon (A) conversion of
the remaining, unconverted Stated Value of Preferred Stock beneficially owned by
such Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Corporation
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including the Warrants) beneficially owned by such Holder or
any of its Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 6(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in this
Section 6(c) applies, the determination of whether the Preferred Stock is
convertible (in relation to other securities owned by such Holder together with
any Affiliates) and of how many shares of Preferred Stock are convertible shall
be in the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination of whether the
shares of Preferred Stock may be converted (in relation to other securities
owned by such Holder together with any Affiliates) and how many shares of the
Preferred Stock are convertible, in each case subject to such aggregate
percentage limitations. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Corporation each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Corporation shall have no obligation to verify
or confirm the accuracy of such determination. In addition, a determination as
to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 6(c), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as stated in the most recent of the
following: (A) the Corporation's most recent Form 10-Q or Form 10-K, as the case
may be, (B) a more recent public announcement by the Corporation or (C) a more
recent notice by the Corporation or the Corporation's transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Corporation shall within two Trading Days confirm
orally and in writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Corporation, including the Preferred Stock, by such Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported. The "Beneficial Ownership Limitation" shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon conversion of Preferred Stock
held by the Holder. The Beneficial Ownership Limitation provisions of this
Section 6(c) may be waived by such Holder, at the election of such Holder, upon
not less than 61 days' prior notice to the Corporation, to change the Beneficial
Ownership Limitation to 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of Preferred Stock held by the Holder and the provisions
of this Section 6(c) shall continue to apply. Upon such a change by a Holder of
the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation shall not be further waived by
such Holder. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section
6(c) to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of Preferred Stock.
d) [RESERVED].
e) Mechanics of Conversion
i. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after each Conversion Date (the "Share Delivery Date"), the
Corporation shall deliver, or cause to be delivered, to the Holder (A) a
certificate or certificates which, on or after the Effective Date, shall be
free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of
shares of Preferred Stock, and (B) a bank check in the amount of accrued
and unpaid dividends (if the Corporation has elected or is required to pay
accrued dividends in cash). On or after the Effective Date, the Corporation
shall, upon request of the Holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Corporation
under this Section 6 electronically through the Depository Trust Company or
another established clearing corporation performing similar functions. If
in the case of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Corporation at any time on or before its
receipt of such certificate or certificates, to rescind such Conversion
Notice by written notice to the Corporation, in which event the Corporation
shall promptly return to the Holder any original Preferred Stock
certificate delivered to the Corporation and the Holder shall promptly
return any Common Stock certificates representing the shares of Preferred
Stock tendered for conversion to the Corporation.
ii. Obligation Absolute; Partial Liquidated Damages. The Corporation's
obligation to issue and deliver the Conversion Shares upon conversion of
Preferred Stock 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 Corporation 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
Corporation to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery shall not operate
as a waiver by the Corporation of any such action that the Corporation may
have against the Holder. In the event a Holder shall elect to convert any
or all of the Stated Value of its Preferred Stock, the Corporation may not
refuse conversion based on any claim that such Holder or any one associated
or affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless an injunction from a court, on
notice to Holder, restraining and/or enjoining conversion of all or part of
the Preferred Stock of the Holder shall have been sought and obtained. If
the Corporation fails to deliver to the Holder such certificate or
certificates pursuant to Section 6(e)(i) on the second Trading Day after
the Share Delivery Date applicable to such conversion, the Corporation
shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, for each $5,000 of Stated Value of Preferred Stock being
converted, $50 per Trading Day (increasing to $100 per Trading Day on the
third Trading Day and increasing to $200 per Trading Day on the sixth
Trading Day after such damages begin to accrue) for each Trading Day after
such second Trading Day after the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Corporation's failure to deliver Conversion
Shares within the period specified herein and such Holder shall have the
right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The Exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof
or under applicable law.
iii. Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. If the Corporation fails to deliver to the Holder such
certificate or certificates by the Share Delivery Date pursuant to Section
6(e)(i), and if after such Share Delivery Date the Holder is required by
its brokerage firm to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder
of the Conversion Shares which the Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a "Buy-In"), then the
Corporation shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder was entitled to
receive from the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) and (B) at the option of the
Holder, either reissue (if surrendered) the shares of Preferred Stock equal
to the number of shares of Preferred Stock submitted for conversion or
deliver to the Holder the number of shares of Common Stock that would have
been issued if the Corporation had timely complied with its delivery
requirements under Section 6(e)(i). For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Preferred Stock
with respect to which the actual sale price (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Corporation
shall be required to pay the Holder $1,000. The Holder shall provide the
Corporation written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Corporation, evidence of the
amount of such loss. 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 Corporation's failure to timely
deliver certificates representing shares of Common Stock upon conversion of
the shares of Preferred Stock as required pursuant to the terms hereof.
iv. Reservation of Shares Issuable Upon Conversion. The Corporation
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of the Preferred Stock and payment of dividends on
the Preferred Stock, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of Persons other than the
Holders of the Preferred Stock, not less than such aggregate number of
shares of the Common Stock as shall (subject to the terms and conditions in
the Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 7) upon the conversion of all outstanding
shares of Preferred Stock and payment of dividends hereunder. The
Corporation covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid
and nonassessable and, if the Conversion Shares Registration Statement is
then effective under the Securities Act, shall be registered for public
sale in accordance with such Conversion Shares Registration Statement.
v. Fractional Shares. Upon a conversion hereunder, the Corporation
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, but may if otherwise permitted, make a cash payment
in respect of any final fraction of a share based on the VWAP at such time.
If the Corporation elects not, or is unable, to make such a cash payment,
the Holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
vi. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Preferred Stock shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes that
may be payable in respect of the issue or delivery of such certificates,
provided that the Corporation shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the
Holder of such shares of Preferred Stock so converted and the Corporation
shall not be required to issue or deliver such certificates unless or until
the Person or Persons requesting the issuance thereof shall have paid to
the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Corporation, at any time while
this Preferred Stock is outstanding: (A) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any other Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Corporation upon conversion of, or payment of a dividend on, this Preferred
Stock); (B) subdivides outstanding shares of Common Stock into a larger number
of shares; (C) combines (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller number of shares; or (D) issues, in the
event of a reclassification of shares of the Common Stock, any shares of capital
stock of the Corporation, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Corporation) 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 this Section 7(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Corporation or any Subsidiary thereof,
at any time while this Preferred Stock is outstanding, sells or grants any
option to purchase or sells or grants any right to reprice its securities, or
otherwise disposes of or issues (or announces any sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per
share that is lower than the then Conversion Price (such lower price, the "Base
Conversion Price" and such issuances collectively, a "Dilutive Issuance") (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Notwithstanding the foregoing, no adjustment will be made
under this Section 7(b) in respect of an Exempt Issuance. The Corporation shall
notify the Holder in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this Section
7(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice,
the "Dilutive Issuance Notice"). For purposes of clarification, whether or not
the Corporation provides a Dilutive Issuance Notice pursuant to this Section
7(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to
receive a number of Conversion Shares based upon the Base Conversion Price on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion.
c) Subsequent Rights Offerings. If the Corporation, at any time while this
Preferred Stock is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share that is lower than the VWAP
on the record date referenced below, then the Conversion Price shall be
multiplied by a fraction of which the denominator shall be the number of shares
of the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Corporation in full
of all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such rights,
options or warrants.
d) Pro Rata Distributions. If the Corporation, at any time while this
Preferred Stock is outstanding, distributes to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than Common Stock, which shall be subject to Section 7(b)), then in each
such case the Conversion Price shall be adjusted by multiplying such Conversion
Price in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets, evidence of
indebtedness or rights or warrants so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors of the
Corporation in good faith. In either case the adjustments shall be described in
a statement delivered to the Holder describing the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
e) Fundamental Transaction. If, at any time while this Preferred Stock is
outstanding, (A) the Corporation effects any merger or consolidation of the
Corporation with or into another Person, (B) the Corporation effects any sale of
all or substantially all of its assets in one transaction or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Corporation
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 (D) the Corporation 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
(in any such case, a "Fundamental Transaction"), then, upon any subsequent
conversion of this Preferred Stock, the Holder shall have the right to receive,
for each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same
kind and amount 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 one share of
Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Corporation shall apportion the Conversion
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
conversion of this Preferred Stock following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to
the Corporation or surviving entity in such Fundamental Transaction shall file a
new Restated Certificate with the same terms and conditions and issue to the
Holder new preferred stock consistent with the foregoing provisions and
evidencing the Holder's right to convert such preferred stock into Alternate
Consideration. 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 Section 7(e) and insuring
that this Preferred Stock (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
f) Calculations. All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.
g) Notice to the Holders.
i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 7, the Corporation shall
promptly mail to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Corporation issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement, the
Corporation shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Corporation shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Corporation shall
authorize the granting to all holders of the Common Stock of rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any shareholders of the
Corporation shall be required in connection with any reclassification of
the Common Stock, any consolidation or merger to which the Corporation is a
party, any sale or transfer of all or substantially all of the assets of
the Corporation, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Corporation
shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Corporation, then, in each case, the
Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Preferred Stock, and shall cause to be
delivered to the Holder at its last address as it shall appear upon the
stock books of the Corporation, at least 10 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect
the validity of the corporate action required to be specified in such
notice. The Holder is entitled to convert the Conversion Amount of this
Preferred Stock (or any part hereof) during the 20-day period commencing on
the date of such notice through the effective date of the event triggering
such notice.
Section 8. Reserved.
Section 9. Reserved.
Section 10. Negative Covenants. So long as 10% of the shares of Preferred
Stock are outstanding, without the consent of the Holders of a majority of the
Preferred Stock then outstanding, the Corporation shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including but not limited to, a guarantee, 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) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any Liens of any kind, 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;
c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of any
Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock, Common
Stock Equivalents or Junior Securities, except for the Conversion
Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;
e) enter into any agreement or understanding with respect to any of the
foregoing; or
f) pay cash dividends or distributions on Junior Securities of the
Corporation.
Section 11. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, or sent
by a nationally recognized overnight courier service, addressed to the
Corporation, at the following address; 000 Xxxxx Xxxxxx, Xxxxxxxxx, XX 00000,
facsimile 201-842-0660, Attn: Xxxxxx Xxxxxxxxx or such other facsimile number or
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this Section 11. Any and all notices or
other communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number or address of such Holder appearing on the books of the
Corporation, or if no such facsimile number or address appears on the books of
the Corporation, at the principal place of business of the Holder. Any notice or
other communication or deliveries hereunder 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 11
prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately
following the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified in this Section 11 between 5:30
p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second Business
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.
b) Absolute Obligation. Except as expressly provided herein, no provision
of this Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay liquidated damages,
accrued dividends and accrued interest, as applicable, on the shares of
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
c) Transfer Limitation. The Preferred Stock shall not be transferred,
without the approval of the Corporation, to any Person who would own, after
giving effect to the conversion of the Preferred Stock, more than 15% of the
Underlying Shares.
d) Lost or Mutilated Preferred Stock Certificate. If a Holder's Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt
of evidence of such loss, theft or destruction of such certificate, and of the
ownership hereof reasonably satisfactory to the Corporation.
e) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation 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 conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, 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 in the state and federal courts sitting in the State of New
York, County of New York (the "New York Courts"). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts 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 such New York Courts,
or such New York Courts are improper or inconvenient venue for such proceeding.
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
Restated Certificate 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 other manner
permitted by applicable 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 Restated Certificate
or the transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Restated Certificate,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred in
the investigation, preparation and prosecution of such action or proceeding.
f) Waiver. Any waiver by the Corporation or the Holder of a breach of any
provision of this Restated Certificate shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other
provision of this Restated Certificate. The failure of the Corporation or the
Holder to insist upon strict adherence to any term of this Restated Certificate
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Restated Certificate. Any waiver by the Corporation or the
Holder must be in writing.
g) Severability. If any provision of this Restated Certificate is invalid,
illegal or unenforceable, the balance of this Restated Certificate shall remain
in effect, and if any provision is inapplicable to any Person or circumstance,
it shall nevertheless remain applicable to all other Persons and circumstances.
If it shall be found that any interest or other amount deemed interest due
hereunder violates the applicable law governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum rate
of interest permitted under applicable law.
h) Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Restated Certificate and shall not be deemed to limit
or affect any of the provisions hereof.
j) Status of Converted or Redeemed Preferred Stock. Shares of Preferred
Stock may only be issued pursuant to the Purchase Agreement. If any shares of
Preferred Stock shall be converted, redeemed or reacquired by the Corporation,
such shares shall resume the status of authorized but unissued shares of
preferred stock and shall no longer be designated as Series B 8% Convertible
Preferred Stock.
II. 8.5% CUMULATIVE CONVERTIBLE PREFERRED STOCK.
Section 1. DIVIDEND RIGHTS. The holders of the 8.5% Cumulative Convertible
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors in its discretion, but only out of funds lawfully available for
dividends under the laws of the State of New York, semiannual dividends at the
rate (the "Preference Rate") of Eighty-Five and 00/100 ($85.00) Dollars per
share, and no more, payable in cash on the last business day of June and
December in each year, commencing on the last business day in June 1997. The
dividends on the 8.5% Cumulative Convertible Preferred Stock shall be cumulative
from and after the date of original issue of the 8.5% Cumulative Convertible
Preferred Stock, whether or not earned or declared. If the Corporation elects to
accrue dividends otherwise payable with respect to the 8.5% Cumulative
Convertible Preferred Stock during the period (the "First Year") commencing the
date of issuance and ending on the last business day in December 1997, the
Preference Rate for the First Year shall be increased to One Hundred Five and
00/100 ($105.00) Dollars per share and shall be payable, out of funds lawfully
available for dividends under the laws of the State of New York, in three (3)
equal installments, with interest at the rate of eight and one-half percent
(8.5%) per annum commencing January 1, 1998, on the last business day of
December 1998, December 1999 and December 2000. No dividend shall at any time be
paid or declared or set apart for payment upon, and no other distribution shall
at any time be declared or made in respect of, any shares of Common Stock, other
than a dividend payable solely in, or a distribution of, Common Stock, unless
full cumulative dividends on the 8.5% Cumulative Convertible Preferred Stock for
all past dividend periods and for the then current dividend period have been
paid or have been declared and a sum sufficient for the payment thereof has been
set apart.
Section 2. VOTING RIGHTS. The holders of the 8.5% Cumulative Convertible
Preferred Stock shall not be entitled to vote except as required by law.
Section 3. REDEMPTION OF 8.5% CUMULATIVE CONVERTIBLE PREFERRED STOCK.
(a) Redemption Price. The 8.5% Cumulative Convertible Preferred Stock shall
be redeemable in whole, or in part, as hereinafter set forth, upon payment in
cash of the Redemption Price in respect of the shares so redeemed. The
"Redemption Price" per share shall be equal to the sum of (i) One Thousand and
00/100 ($1,000.00) Dollars and (ii) all dividends accrued on such share to the
date of redemption and theretofore unpaid. Not less than ten (10) days prior
written notice shall be given to the holder or holders of record of the 8.5%
Cumulative Convertible Preferred Stock to be redeemed, at the address as shown
in the records of the Corporation. Said notice shall specify the redemption
price and the place at which, and the date, which date shall not be a legal
holiday, on which the shares called for redemption will be redeemed. Subject to
the provisions hereof, the Board of Directors shall have authority from time to
time to prescribe the manner in which the 8.5% Cumulative Convertible Preferred
Stock shall be redeemed. If notice of redemption is given as provided above, and
if on the redemption date the Corporation has set apart, in trust for the
purpose, sufficient funds for such redemption, then from and after the
redemption date, notwithstanding that any certificate for such shares has not
been surrendered for cancellation, the 8.5% Cumulative Convertible Preferred
Stock called for redemption shall be deemed to be no longer outstanding and all
rights with respect to such shares shall forthwith cease and terminate, except
only the right of the holders thereof to receive the redemption price therefor
(without interest) upon surrender of certificates for the shares called for
redemption.
(b) Voluntary Redemption of 8.5% Cumulative Convertible Preferred Stock. To
the extent permitted by law, the Corporation may at its option by resolution of
its Board of Directors redeem the 8.5% Cumulative Convertible Preferred Stock in
whole, or in part, at the Redemption Price. If less than all of the outstanding
8.5% Cumulative Convertible Preferred Stock is to be redeemed, the redemption
shall be in such amount and by such method (which need not be by lot or pro
rata), and subject to such other provisions, as may from time to time be
determined by the Board of Directors.
Section 4. RIGHTS ON LIQUIDATION. In the event of liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the 8.5%
Cumulative Convertible Preferred Stock outstanding shall be entitled to receive
in respect of each such share an amount which shall be equal to the Redemption
Price, and no more, before any payment or distribution of the assets of the
Corporation is made to or set apart for the holders of Common Stock. After
payment in full of the preferential amounts required to be paid to the holders
of the 8.5% Cumulative Convertible Preferred Stock, the holders of Common Stock
shall be entitled, to the exclusion of the holders of the 8.5% Cumulative
Convertible Preferred Stock, to share in all remaining assets of the Corporation
in accordance with their respective interests. For the purpose of this Paragraph
IV, a consolidation or merger of the Corporation with any other corporation or
corporations, whether or not the Corporation continues in existence following
such consolidation or merger, shall not be deemed a liquidation, dissolution or
winding-up of the Corporation.
Section 5. CONVERSION OF 8.5% CUMULATIVE CONVERTIBLE PREFERRED STOCK. The
holders of 8.5% Cumulative Convertible Preferred Stock shall have conversion
rights as follows:
(a) Right to Convert. The 8.5% Cumulative Convertible Preferred Stock shall
be convertible, at the option of the registered holders thereof, in whole or in
part. In the event of a conversion, each share of the 8.5% Cumulative
Convertible Preferred Stock shall be converted into the number of fully paid and
non-assessable shares of Common Stock of the Corporation, which is determined by
dividing $1,000 by a conversion price (the "Conversion Price")as set forth
herein. Before January 1, 2001, 50% of the shares of the 8.5% Cumulative
Convertible Preferred Stock held by each registered holder shall be convertible
at the Conversion Price of $6.00 per share and 50% of such shares held by each
registered holder shall be convertible at the Conversion Price of $7.50 per
share. Commencing January 1, 2001, each share of the 8.5% Cumulative Convertible
Preferred Stock shall be convertible into shares of Common Stock of the
Corporation at the Conversion Price equal to the average of the closing bid
price of one share of Common Stock over the 45 trading days preceding January 1,
2001, if traded on the NASDAQ Capital Market or the OTC Electronic Bulletin
Board, or the average of the last sales price of the Common Stock over the 45
trading days preceding January 1, 2001, if traded on the NASDAQ National Market
System or a national stock exchange.
(b) Mechanics of Conversion. Before any holder of 8.5% Cumulative
Convertible Preferred Stock shall be entitled to convert the same into Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at such office as is hereinabove provided, and shall give written
notice to the Corporation at said office that he elects to convert the same and
shall state the name or names in which he wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver to such holder of 8.5% Cumulative
Convertible Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid. 8.5% Cumulative Convertible Preferred Stock shall be
deemed to have been converted as of the date on which such shares shall have
been surrendered to and such notice received by the Corporation as aforesaid,
and the person or persons in whose name or names any certificate or certificates
for Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder or holders of record for all purposes of the
shares represented thereby.
(c) Redemption by the Corporation Prior to Conversion. If at any time prior
to the exercise of the conversion rights afforded the holder of the 8.5%
Cumulative Convertible Preferred Stock, the 8.5% Cumulative Convertible
Preferred Stock are redeemed by the Corporation, in whole or in part, then the
conversion right as provided herein, shall be deemed canceled with respect to
such redeemed stock, as of the date of such redemption.
(d) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available, free from redemption rights, out of its
authorized but unissued Common Stock, solely for the purpose of effecting the
conversion of the 8.5% Cumulative Convertible Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of the 8.5% Cumulative
Convertible Preferred Stock from time to time outstanding. The Corporation shall
from time to time, in accordance with the laws of the State of New York,
increase the authorized amount of its Common Stock if at any time the number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the 8.5% Cumulative Convertible Preferred Stock at the time
outstanding.
(e) Issue Taxes. The Corporation will pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the 8.5% Cumulative Convertible Preferred Stock pursuant
hereto, other than those on or measured by income. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the 8.5% Cumulative Convertible Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(f) Adjustments for Reclassification and Reorganization. In case of any
capital reorganization or any reclassification of the Common Stock, or in case
of the consolidation or merger of the Corporation with or into another
corporation, or the conveyance of all or substantially all of the assets of the
Corporation to another corporation, each Preferred Share shall thereafter be
convertible into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock deliverable upon
conversion of such 8.5% Cumulative Convertible Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation, merger or
conveyance, and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
the 8.5% Cumulative Convertible Preferred Stock, to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustments of the conversion price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the 8.5% Cumulative Convertible
Preferred Stock.
(g) Fractional Shares. No cash will be paid nor distributions of any kind
made in lieu of the conversion right. On any exercise of a conversion right, no
fractional shares of the Corporation's Common Stock will be issued, and no cash
will be paid nor distributions of any kind made in lieu of whole or fractional
shares not issued pursuant to the terms and conditions hereof.
III. COMMON STOCK.
Section 1. Dividend Rights. Subject to the foregoing provisions with
respect to the 8.5% Cumulative Convertible Preferred Stock and with respect to
the Series B 8% Convertible Preferred Stock and not otherwise, such dividends,
payable in cash, stock or otherwise, as may be determined by the Board of
Directors, may be declared and paid on the Common Stock from time to time out of
any funds lawfully available therefor, and the 8.5% Cumulative Convertible
Preferred Stock shall not be entitled to participate in such dividend.
Section 2. Voting Rights The holders of the Common Stock shall be entitled
to one vote per share.
Section 3. Rights on Liquidation. In the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary
and after payment in full of the amount payable in respect of the 8.5%
Cumulative Convertible Preferred Stock, as provided above, the holders of the
shares of Series B 8% Convertible Preferred Stock and the Common Stock shall be
entitled, to the exclusion of the holders of the 8.5% Cumulative Convertible
Preferred Stock, to share in all the remaining assets of the Corporation. For
the purpose of this Paragraph III, a consolidation or merger of the Corporation
with any corporation or corporations, whether or not the Corporation continues
in existence following such consolidation or merger, shall not be deemed a
liquidation, dissolution or winding-up of the Corporation.
FOURTH: The office of the Corporation shall be located in the County of New
York, New York or such other location as the Board of Directors may determine.
The post office address within the State of New York to which the Secretary of
State shall mail a copy of any process against the Corporation shall be c/o
Ruskin Moscou Faltischek, P.C., 0000 Xxxxxxx Xxxxx, Xxxx Tower, 15th Floor,
Uniondale, New York, Attention: Xxxxxxx X. Xxxxx, Esq.
FIFTH: The duration of the Corporation shall be perpetual.
SIXTH: That the directors and officers of this Corporation need not be
Shareholders.
SEVENTH: The Secretary of State is hereby designated as the agent of the
Corporation upon whom process in any action or proceeding against it may be
served.
EIGHTH: Unless otherwise determined by the Board of Directors, no holder of
stock of the Corporation of any class shall, as such holder, have any right to
purchase, or subscribe for: (a) any stock of any class now or hereafter
authorized, or any warrants, options or other instruments that shall confer upon
the holders thereof the right to subscribe for or purchase or receive from the
Corporation any stock of any class which the Corporation may issue or sell,
whether or not the same shall be exchangeable for any stock of the Corporation
of any class; or (b) any obligation which the Corporation may issue or sell that
shall be convertible into or exchangeable for any shares of the capital stock of
the Corporation of any class or to which shall be attached or appurtenant any
obligations, warrants, options or other instruments the right to subscribe for
or purchase or received for the Corporation any share of its capital stock of
any call or classes now or hereafter authorized.
NINTH: The following provisions are inserted for the regulation and conduct
of the affairs of the Corporation; and it is expressly provided that they are
intended to be in furtherance and not in limitation or exclusion of the powers
conferred by statute.
a. Meetings of the shareholders and directors of the Corporation for all
purposes may be held at its office or elsewhere in the State of New
York, and meetings of the directors may be held outside of the State
of New York at such place or places as may from time to time be
designate in the by-laws or by resolution of the Board of Directors.
b. All corporate powers except those which by law expressly require the
consent of the shareholders shall be exercised by the Board of
Directors.
c. The Board of Directors shall have power from time to time to fix and
determine and vary the amount of the working capital of the
Corporation and to direct and determine the use and disposition of any
surplus or net profits over and above its capital, and in its
discretion, the Board of Directors may use and apply any such surplus
or accumulated profits in purchasing or acquiring bonds or other
obligations of the Corporation or, subject to the rights of the Series
B 8% Convertible Preferred Stock, shares of its own capital stock, to
such extent and in such manner and upon such terms as the Board of
Directors shall deem expedient, but any shares of such capital stock
so purchased or acquired may be resold unless such shares shall have
been retired in the manner provided by law for the purpose of
decreasing the Corporation's capital.
d. No contract or other transaction between this Corporation and any
other corporation shall be affected or invalidated by the fact that
any director of this Corporation is interested in or is an officer or
director, of such other corporation and any director, individually or
jointly, may be a party to, or may be interested in, any contract or
transaction of this Corporation, or in which this Corporation is
interested, and no contract or other transaction of this Corporation
with any person, firm or corporation shall be affected or invalidated
by the fact that any director of this Corporation is a party to, or is
interested in such contract, or transaction or in any way connected
with such person, firm or corporation, and every person who may become
a director of this Corporation is hereby relieved of any liability
that may otherwise exist from contracting with the corporation for the
benefit of himself or any firm, association or corporation in which he
may be in any way interested.
e. Any person made a party to any action, suit or proceeding by reason of
the fact that he, his testator or intestate, is or was a director,
officer or employee of the Corporation or of any Corporation which he
served as such at the request of the Corporation, shall be indemnified
by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceeding, or in
connection with any appeal therein, except in relation to matters as
to which it shall be adjudged in such action, suit or proceeding that
such officer, director or employee is liable for negligence or
misconduct in the performance of his duties. Such right of
indemnification shall not be deemed exclusive of any other rights to
which such director, officer or employee may be entitled apart from
this provision.
f. The Board of Directors is authorized and empowered to eliminate shares
of Common Stock which have been reacquired by the Corporation from the
authorized capital stock or number of shares of the Corporation or to
restore such shares to the status of authorized but unissued shares
which may be reissued and to cause to be executed and filed with the
Secretary of State of New York, a certificate pursuant to Section 20
of the Stock Corporation Law.
g. The Board of Directors is authorized to adopt and implement such
anti-takeover provisions as the Board of Directors deems in the
exercise of its fiduciary duties, under the circumstances existing at
the time, in the best interests of Company's shareholders, which
provision shall not be amended by the shareholders absent the vote of
the holders of at least sixty-six and two-thirds (66 2/3%) percent of
the issued and outstanding common stock. If an anti-takeover provision
is adopted by the Board of Directors without prior shareholder
approval, such provision shall provide that it will expire unless
ratified by the shareholders within one year of adoption.
h. The amendments of the Certificate of Incorporation and the restatement
thereof were authorized and approved by the Board of Directors of the
Corporation.
TENTH. No director shall be personally liable to the Corporation or any of
its shareholders for monetary damages for breach of duty as a director, except
for liability if a judgment or other final adjudication adverse to him
establishes that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled or that
his action violated Section 719 of the New York Business Corporation Law. Any
repeal or modification of this Article TENTH by the shareholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification with respect
to acts or omissions occurring prior to such repeal or modification.
Subscribed and affirmed by me as true under the penalties of perjury on
this ___ day of _____________, 2006.
------------------------------
Xxxxxxxx X. Xxxx, President
------------------------------
Xxxxxx X. Xxxxxxxxx, Secretary
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES
OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series B 8%
Convertible Preferred Stock indicated below into shares of common stock, par
value $.01 per share (the "Common Stock"), of Xxxxxx Electronics, Inc., a New
York corporation (the "Corporation"), according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a Person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as may
be required by the Corporation in accordance with the Purchase Agreement. No fee
will be charged to the Holder for any conversion, except for any such transfer
taxes.
Conversion calculations:
Date to Effect Conversion:---------------------------------------------
Number of shares of Preferred Stock owned prior to Conversion: --------
Number of shares of Preferred Stock to be Converted: ------------------
Stated Value of shares of Preferred Stock to be Converted:-------------
Number of shares of Common Stock to be Issued:-------------------------
Applicable Conversion Price:-------------------------------------------
Number of shares of Preferred Stock subsequent to Conversion: ---------
[HOLDER]
By:-------------------------------------
Name:
Title:
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of _________, 2006 among Xxxxxx Electronics, Inc., a New York
corporation (the "Company"), and the several purchasers signatory hereto (each
such purchaser is a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof between the Company and each Purchaser (the "Purchase
Agreement").
The Company and each Purchaser hereby agrees as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 180th calendar day following
the date hereof and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 60th calendar day
following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required
hereunder; provided, however, in the event the Company is notified by the
Commission that one of the above Registration Statements will not be
reviewed or is no longer subject to further review and comments, the
Effectiveness Date as to such Registration Statement shall be the fifth
Trading Day following the date on which the Company is so notified if such
date precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 30th calendar day following the date
hereof and, with respect to any additional Registration Statements which
may be required pursuant to Section 3(c), the 30th day following the date
on which the Company first knows, or reasonably should have known that such
additional Registration Statement is required hereunder.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in Section
2(a).
"Prospectus" means the prospectus included in a 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 a 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.
"Registrable Securities" means, as of the date in question, (i) all of
the shares of Common Stock issuable upon conversion in full of the shares
of Preferred Stock, (ii) all shares of Common Stock issuable as dividends
or principal on the Preferred Stock assuming all dividend and principal
payments are made in shares of Common Stock and the Preferred Stock is held
for at least 3 years, (iii) all Warrant Shares, (iv) any additional shares
issuable in connection with any anti-dilution provisions associated with
the Preferred Stock and Warrants (in each case, without giving effect to
any limitations on conversion set forth in the Certificate of Designation
or limitations on exercise set forth in the Warrant) and (v) 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 registration statements required to
be filed hereunder and any additional registration statements contemplated
by Section 3(c), 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.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set forth
in Section 3(a).
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering the
resale of 130% of the Registrable Securities on such Filing Date for an
offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on another appropriate form
in accordance herewith) and shall contain (unless otherwise directed by at
least an 85% majority in interest of the Holders) substantially the "Plan
of Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best commercial efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to
the applicable Effectiveness Date, and shall use its best commercial
efforts to keep such Registration Statement continuously effective under
the Securities Act until all Registrable Securities covered by such
Registration Statement have been sold, or may be sold without volume
restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 pm Eastern Time on a
Trading Day. The Company shall immediately notify the Holders via facsimile
of the effectiveness of a Registration Statement on the same Trading Day
that the Company telephonically confirms effectiveness with the Commission,
which shall be the date requested for effectiveness of a Registration
Statement. The Company shall, by 9:30 am Eastern Time on the Trading Day
after the Effective Date (as defined in the Purchase Agreement), file a
final Prospectus with the Commission as required by Rule 424. Failure to so
notify the Holder within 1 Trading Day of such notification of
effectiveness or failure to file a final Prospectus as aforesaid shall be
deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a), 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 of 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 not subject to
further review, or (iii) prior to its Effectiveness Date, the Company fails
to file a pre-effective amendment and otherwise respond in writing to
comments made by the Commission in respect of such Registration Statement
within 10 calendar days after the receipt of comments by or notice from the
Commission that such amendment is required in order for a Registration
Statement to be declared effective, or (iv) a Registration Statement filed
or required to be filed hereunder is not declared effective by the
Commission by its Effectiveness Date, or (v) after the Effectiveness Date,
a Registration Statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it is required to be
effective, or the Holders are otherwise not permitted to utilize the
Prospectus therein to resell such Registrable Securities for more than 15
consecutive calendar days or more than an aggregate of 20 calendar days
during any 12-month period (which need not be consecutive calendar days),
or (vi) the Common Stock shall fail to be listed or quoted for trading on a
Trading Market (including trading on the OTC Bulletin Board) for more than
five Trading Days, which need not be consecutive Trading Days (any such
failure or breach being referred to as an "Event", and for purposes of
clause (i) or (iv) 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 clause (iii) the date which such 10 calendar day period is
exceeded, or for purposes of clause (v) the date on which such 15 or 20
calendar day period, or for purposes of clause (vi) the date on which such
five Trading Day period is exceeded, as applicable, is exceeded being
referred to as "Event Date"), then in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date
and on each monthly anniversary of each such Event Date (if the applicable
Event shall not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to 1.5% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement for
any Registrable Securities then held by such Holder up to an aggregate
maximum of 9.0%. If the Company fails to pay any partial 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 18% per annum (or such
lesser maximum amount that is permitted to be paid by applicable law) to
the Holder, accruing daily from the date such partial liquidated damages
are due until such amounts, plus all such interest thereon, are paid in
full. The partial liquidated damages pursuant to the terms hereof shall
apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than 5 Trading Days prior to the filing of each
Registration Statement and not less than one 1 Trading Day prior to the
filing of 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 each
Holder 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 reasonable review of such Holders, 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 each Holder 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 the Holders of a majority of
the Registrable Securities shall reasonably object in good faith, provided
that, the Company is notified of such objection in writing no later than 5
Trading Days after the Holders have been so furnished copies of a
Registration Statement or 1 Trading Day after the Holders have been so
furnished copies of any related Prospectus or amendment or supplement
thereto. Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") not less than two Trading Days prior to the
Filing Date or by the end of the fourth Trading Day following the date on
which such Holder receives draft materials in accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
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 (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to a Registration Statement or
any amendment thereto and as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement (provided that the Company
may excise any information contained therein which would constitute
material non-public information as to any Holder which has not executed a
confidentiality agreement with the Company); 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 a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 90% of the number of shares of Common Stock
then registered in a Registration Statement, then the Company shall file as
soon as reasonably practicable but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the resale by
the Holders of not less than 130% of the number of such Registrable
Securities.
(d) Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied
by an instruction to suspend the use of the Prospectus until the requisite
changes have been made) as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than 1 Trading Day prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later
than one Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any
revisions to a Registration Statement, Prospectus or other documents so
that, in the case of a Registration Statement or the Prospectus, as the
case may be, 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 light of the circumstances under which
they were made, not misleading; and (vi) the occurrence or existence of any
pending corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company,
makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus; provided that any
and all of such information shall remain confidential to each Holder until
such information otherwise becomes public, unless disclosure by a Holder is
required by law; provided, further, notwithstanding each Holder's agreement
to keep such information confidential, the Holders make no acknowledgement
that any such information is material, non-public information.
(e) Use its best commercial efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness
of a Registration Statement, or (ii) any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder, without charge, at least one conformed
copy of each such Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference to the extent requested by
such Person, 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.
(g) Subject to the terms of this Agreement, the Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(d).
(h) If NASDR Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale by a Holder, the Company shall (i) make an Issuer
Filing with the NASDR, Inc. Corporate Financing Department pursuant to
proposed NASDR Rule 2710(b)(10)(A)(i), (ii) respond within five Trading
Days to any comments received from NASDR in connection therewith, and (iii)
pay the filing fee required in connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with
the selling Holders in connection with the registration or qualification
(or exemption from the Registration or qualification) of such Registrable
Securities for the resale by the Holder under the securities or Blue Sky
laws of such jurisdictions within the United States as any Holder
reasonably requests in writing, to keep each registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to
do any and all other acts or things reasonably necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by
each Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it
is not then so qualified, subject the Company to any material tax in any
such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders 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 the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may request.
(k) Upon the occurrence of any event contemplated by this Section 3,
as promptly as reasonably possible under the circumstances taking into
account the Company's good faith assessment of any adverse consequences to
the Company and its stockholders of the premature disclosure of such event,
prepare a supplement or amendment, including a post-effective amendment, to
a 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 a 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 light of
the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (iii) through (vi)
of Section 3(d) above to suspend the use of any Prospectus until the
requisite changes to such Prospectus have been made, then the Holders shall
suspend use of such Prospectus. The Company will use its best commercial
efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable. The Company shall be entitled to exercise its right
under this Section 3(k) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial liquidated
damages pursuant to Section 2(b), for a period not to exceed 60 calendar
days (which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the
natural persons thereof that have voting and dispositive control over the
Shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such information
within three Trading Days of the Company's request, any liquidated damages
that are accruing at such time as to such Holder only shall be tolled and
any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to
the Company.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities) and (C) if
not previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions of any Holder or, except to
the extent provided for in the Transaction Documents, any legal fees or other
costs of the Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder,
the officers, directors, members, partners, 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 (and any other Persons with a
functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each of them,
each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, shareholders, partners, agents and employees (and any
other Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of such title or any other title) of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to (1)
any untrue or alleged untrue statement of a material fact contained in a
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 light of the circumstances under which they were
made) not misleading, or (2) any violation or alleged violation by the
Company of the Securities Act, Exchange Act or any state securities law, or
any rule or regulation thereunder, in connection with the performance of
its obligations under this Agreement, except to the extent, but only to the
extent, that (i) such untrue statements or omissions arise out of or are
based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that
such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or such form of Prospectus or in any amendment
or supplement thereto (it being understood that the Holder has reviewed and
approved Annex A hereto for this purpose) or (ii) in the case of an
occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the
use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding arising from or
in connection with the transactions contemplated by this Agreement of which
the Company is aware.
(b) Indemnification by Holders. Each Holder 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 incurred, to the extent arising out of or based
solely upon: (x) such Holder's failure to comply with the prospectus
delivery requirements of the Securities Act or (y) any untrue or alleged
untrue statement of a material fact contained in any 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 not
misleading (i) 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 Holder to the Company specifically for inclusion in such
Registration Statement or such Prospectus or (ii) to the extent that such
information relates to such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing
by such Holder expressly for use in a Registration Statement (it being
understood that the Holder has reviewed and approved Annex A hereto for
this purpose), 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 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder 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 have the right to 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 prejudiced the Indemnifying
Party.
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: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material 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 the reasonable fees and expenses of no more
than one separate 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 or delayed. 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.
Subject to the terms of this Agreement, all reasonable 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; provided, that
the Indemnified Party shall promptly reimburse the Indemnifying Party for
that portion of such fees and expenses applicable to such actions for which
such Indemnified Party is judicially determined to be not entitled to
indemnification hereunder.
(d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified
Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, 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 this Agreement, any reasonable
attorneys' or other fees or expenses incurred by such party in connection
with any Proceeding to the extent such party would have been indemnified
for such fees or expenses if the indemnification provided for in this
Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(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 5(d),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, except in the case of fraud by such Holder.
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. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their respective obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise
all rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall not assert or shall waive the defense that a
remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the initial Registration Statement other than
the Registrable Securities. The Company shall not file any other
registration statements until the initial Registration Statement required
hereunder is declared effective by the Commission, provided that this
Section 6(b) shall not prohibit the Company from filing amendments to
registration statements already filed. In addition, the Company shall not
file any registration statement registering the resale of shares underlying
warrants issued to any director of the Company until at least six months
after the initial Registration Statement required hereunder is declared
effective by the Commission.
(c) Compliance. Each Holder covenants and 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 a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition of
Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(d)(iii)
through (vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under a Registration Statement until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus (as it may have been supplemented or amended) may be resumed.
The Company will use its best commercial efforts to ensure that the use of
the Prospectus may be resumed as promptly as it practicable. The Company
agrees and acknowledges that any periods during which the Holder is
required to discontinue the disposition of the Registrable Securities
hereunder shall be subject to the provisions of Section 2(b).
(e) 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 the
stock option or other employee benefit plans, then the Company shall send
to each Holder a written notice of such determination and, if within
fifteen days after the date of such notice, any such Holder shall so
request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Holder
requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights; provided, however, that
the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a
then effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and each Holder of the then outstanding Registrable Securities.
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 Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however, that
the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set
forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign (except by merger) its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its Subsidiaries, on or after the date of this Agreement, enter into
any agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into
any agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.
(j) Execution and Counterparts. 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 or by
e-mail delivery of a ".pdf" format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such
facsimile or ".pdf" signature page were an original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined in accordance with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any other remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement 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.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Holder
pursuant hereto or thereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Holders are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Holder shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and
it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
********************
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
XXXXXX ELECTRONICS, INC.
By:----------------------------------
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO HRVE RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
ANNEX A
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common stock
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the Nasdaq Capital
Market or any other 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. A Selling Stockholder 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 settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
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, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the 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 the 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 and any broker-dealers or agents that are involved
in selling the shares 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 purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
Annex B
XXXXXX ELECTRONICS, INC.
Selling Securityholder Notice and Questionnaire
The undersigned beneficial owner of common stock, par value $.01 per share
(the "Common Stock"), of Xxxxxx Electronics, Inc., a New York corporation (the
"Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
March __, 2006 (the "Registration Rights Agreement"), among the Company and the
Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a natural
person who directly or indirectly alone or with others has power
to vote or dispose of the securities covered by the
questionnaire):
------------------------------------------------------------
2. Address for Notices to Selling Securityholder:
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Telephone:------------------------------------------------------------------
Fax:------------------------------------------------------------------------
Contact Person:-------------------------------------------------------------
3. Beneficial Ownership of Registrable Securities:
(a) Type and Number of Registrable Securities beneficially owned (not
including the Registrable Securities that are issuable pursuant
to the Purchase Agreement):
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4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable
Securities as compensation for investment banking services to the
Company.
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify that
you bought the Registrable Securities in the ordinary course of
business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings,
directly or indirectly, with any person to distribute the
Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
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----------------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
-------------------- ------------------------------
By:
---------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
SERIES A
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
XXXXXX ELECTRONICS, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, _____________ (the "Holder"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the "Initial Exercise Date") and on or
prior to the close of business on the 7 year anniversary of the Initial Exercise
Date (the "Termination Date") but not thereafter, to subscribe for and purchase
from Xxxxxx Electronics, Inc., a New York corporation (the "Company"), up to
______ shares (the "Warrant Shares") of Common Stock, par value $.01 per share,
of the Company (the "Common Stock"). The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated April __, 2006, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within
3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise
is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the
date of such purchases. The Company shall deliver any objection to any
Notice of Exercise Form within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $1.40, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of
a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, to the extent not previously exercised, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d) Exercise Limitations.
i. Holder's Restrictions. The Company shall not effect any exercise
of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2(c) or
otherwise, to the extent that after giving effect to such
issuance after exercise as set forth on the applicable Notice of
Exercise, such Holder (together with such Holder's Affiliates,
and any other person or entity acting as a group together with
such Holder or any of such Holder's Affiliates), as set forth on
the applicable Notice of Exercise, would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by such Holder and its Affiliates
shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such
Holder or any of its Affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities
of the Company (including, without limitation, any other
Preferred Stock or Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein beneficially owned by such Holder or any of its
affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 2(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder, it being
acknowledged by a Holder that the Company is not representing to
such Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and such Holder is solely responsible
for any schedules required to be filed in accordance therewith.
To the extent that the limitation contained in this Section 2(d)
applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder together
with any Affiliates) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the
submission of a Notice of Exercise shall be deemed to be each
Holder's determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with
any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall
be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. For
purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as reflected in (x)
the Company's most recent Form 10-Q or Form 10-K, as the case may
be, (y) a more recent public announcement by the Company or (z)
any other notice by the Company or the Company's Transfer Agent
setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall
within three Trading Days confirm orally and in writing to such
Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise
of securities of the Company, including this Warrant, by such
Holder or its Affiliates since the date as of which such number
of outstanding shares of Common Stock was reported. The
"Beneficial Ownership Limitation" shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Beneficial Ownership Limitation
provisions of this Section 2(d)(i) may be waived by such Holder,
at the election of such Holder, upon not less than 61 days' prior
notice to the Company to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant, and the
provisions of this Section 2(d) shall continue to apply. Upon
such a change by a Holder of the Beneficial Ownership Limitation
from such 4.99% limitation to such 9.99% limitation, the
Beneficial Ownership Limitation may not be further waived by such
Holder. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with
the terms of this Section 2(d)(i) to correct this paragraph (or
any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or
to make changes or supplements necessary or desirable to properly
give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.
ii. [RESERVED].
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of
the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring
contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the
account of the Holder's prime broker with the Depository
Trust Company through its Deposit Withdrawal Agent
Commission ("DWAC") system if the Company is a participant
in such system, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise
within 3 Trading Days from the delivery to the Company of
the Notice of Exercise Form, surrender of this Warrant (if
required) and payment of the aggregate Exercise Price as set
forth above ("Warrant Share Delivery Date"). This Warrant
shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares for
all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to
be paid by the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder
a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical
with this Warrant.
iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to
this Section 2(e)(iv) by the Warrant Share Delivery Date,
then the Holder will have the right to rescind such
exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights
available to the Holder, if the Company fails to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery Date, and
if after such date the Holder is required by its broker to
purchase (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 which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the Company
shall (1) pay in cash to the Holder the amount by which (x)
the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at
issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at
the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder
the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of
such loss. 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.
vi. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay
a cash adjustment in respect of such final fraction in an
amount equal to such fraction multiplied by the Exercise
Price or round up to the next whole share.
vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder
for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder;
provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and the Company
may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental
thereto.
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents
the timely exercise of this Warrant, pursuant to the terms
hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof,
as applicable, at any time while this Warrant is outstanding, shall sell or
grant any option to purchase or sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Exercise Price
(such lower price, the "Base Share Price" and such issuances collectively,
a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per
share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is
less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced to
equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such adjustment.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments shall
be made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share
Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.
c) Subsequent Rights Offerings. If the Company, at any time while the
Warrant is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) 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 (D) 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 (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the 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. To the extent
necessary to effectuate the foregoing provisions, 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 exercise such warrant into Alternate
Consideration. 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 Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
f) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
g) Voluntary Adjustment By Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
h) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the
Company shall promptly mail to each Holder a notice setting
forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or
Common Stock Equivalents at the lowest possible conversion
or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever
form) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting
to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders
of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear
upon the Warrant Register of the Company, at least 20
calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and
the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange;
provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in
such notice. The Holder is entitled to exercise this Warrant
during the 20-day period commencing on the date of such
notice to the effective date of the event triggering such
notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. 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.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a "qualified institutional buyer"
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(ii).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock
a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or
of any requirements of the Trading Market upon which the Common Stock may
be listed.
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending
its certificate of incorporation 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 actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the
number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: April __, 2006
XXXXXX ELECTRONICS, INC.
By:--------------------------------
Name:
Title:
NOTICE OF EXERCISE
TO: [------------------
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set
forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in
subsection 2(c).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
----------------------------------------
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
----------------------------------------
----------------------------------------
----------------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ____________________________________________________
Signature of Authorized Signatory of Investing Entity: _______________________
Name of Authorized Signatory: ________________________________________________
Title of Authorized Signatory: _______________________________________________
Date: ________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________ .
_______________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT D
EMPLOYMENT AGREEMENT
D. XXXXXX XXXXXXXXX
EMPLOYMENT AGREEMENT dated __________, 2006 by and between Xxxxxx
Electronics, Inc. a New York corporation, (the "Company") and D. Xxxxxx
Xxxxxxxxx (the "Executive").
WHEREAS the Company desires to employ Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement"); and
WHEREAS Executive desires to accept such employment and enter into such an
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company for a period (the
"Employment Term") commencing on the Closing Date as defined in the Securities
Purchase Agreement dated April 17, 2006 among the Company and the purchasers
party thereto (the "Commencement Date") and ending ____, 2007 (the "Termination
Date").
2. Position.
(a) Executive shall serve as Chairman of the Board. In such position,
Executive shall have such duties and authority as shall be determined from
time to time by the Board of Directors of the Company (the "Board") or its
designee.
(b) During the term of his employment, the Executive shall advise with
respect to strategic issues concerning the Company. In addition, the
Executive shall serve as the Chairman of the Board at all times during the
period(s) in which he serves as a director of the Company. It shall not be
a violation of this Agreement for the Executive to (i) serve as an officer,
director or employee of any other company, including Trinity Investment
Partners, LLC, (ii) serve on corporate, civic or charitable boards or
committees or (iii) manage his personal investments.
3. Base Salary. Company shall pay Executive an annual base salary (the
"Base Salary") at an annual rate of $150,000 payable on the Termination Date in
vested warrants to purchase common stock of the Company with substantially the
terms set forth in Exhibit A hereto.
4. Bonus. With respect to each three month period durng the term of this
Agreement, Executive shall be eligible to receive, in addition to his Base
Salary, a bonus (the "Bonus") for services rendered during such period, which
Bonus shall be paid in the month following such perod, in an amount equal to
$50,000, payable in vested warrants to purchase common stock of the Company with
substantially the terms set forth in Exhibit A hereto.
For purposes of Sections 3 and 4 hereof, common stock of the Company will
be deemed to have a value equal to the average VWAP over the period with respect
to which the payment is being made. Warrants and options will be issued with a
strike price of 50% of the average VWAP over such period and shall be deemed to
have a value for purposes of Sections 3 and 4 hereof equal to 50% of the average
VWAP over such period and shall be exercisable no later than March 15 of the
calendar year following the calendar year in which they are issued. Such
warrants or options shall have substantially the terms set forth in Exhibit A
hereto. In addition, if common stock, options or warrants are issued in payment
of the Base Salary or Bonus, they will be subject to share withholding as
specified by Executive for the payment of withholding taxes.
"VWAP" 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 a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent 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 the Executive and
reasonably acceptable to the Company.
The shares of common stock issued, and the shares of common stock issuable
upon exercise of options or warrants issued, in each case pursuant to this
Agreement will be entitled to the benefit of a Registration Rights Agreement in
the form attached as Appendix B to the Consulting Agreement dated as of the date
hereof between Trinity Investment Partners, LLC and the Company.
Notwithstanding anything to the contrary set forth herein, in no event
shall warrants issued hereunder be exerciseable for more than 1,000,000 shares
of Common Stock.
5. Additional Compensation. As further compensation, Executive will be
eligible for additional bonuses, incentive compensation and equity participation
opportunities as the Board shall determine with sole discretion.
6. Employee Benefits. Executive shall be provided employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) (collectively
"Employee Benefits") on the same basis as those benefits are generally made
available to senior executives of the Company.
7. Business Expenses and Perquisites. Reasonable travel, entertainment and
other business expenses incurred by Executive in the performance of his duties
hereunder shall be reimbursed by the Company in accordance with Company
policies.
8. Termination.
(a) For Cause by the Company. Executive's employment hereunder may be
terminated by the Company for Cause. For purposes of this Agreement,
"Cause" shall be deemed to be the commission of any of the following acts
by the Executive: (i) the Executive shall have committed any act of gross
negligence in the performance of his duties to the Company, or, without
proper cause, shall have willfully refused or habitually neglected to
perform such duties; (ii) the Executive shall have committed any material
act of willful misconduct, dishonesty or breach of trust which directly or
indirectly causes the Company or any of its subsidiaries to suffer any
loss, fine, civil penalty, judgment, claim, damage or expense; or (iii) the
Executive shall have been convicted of, or shall have pled guilty or nolo
contendere to, a felony or indictable offense (unless committed in the
reasonable, good faith belief that the Executive's actions were in the best
interests of the Company and its stockholders and would not violate
criminal law). If Executive is terminated for Cause, he shall be entitled
to receive his Base Salary through the date of termination and any Bonus
payable with respect to any three month period completed prior to such
termination. All other benefits due Executive following Executive's
termination of employment pursuant to this Subsection 8(a) shall be
determined in accordance with the plans, policies and practices of the
Company. For purposes of this Subsection, no act or failure to act, on the
part of Executive shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that the
act or omission of Executive was in the best interest of the Company.
(b) Disability or Death. Executive's employment hereunder shall
terminate upon his death and if Executive becomes physically or mentally
incapacitated and is therefore unable for a period of six (6) consecutive
months or for an aggregate of nine (9) months in any twelve (12)
consecutive month period to perform his duties (such incapacity is
hereinafter referred to as "Disability"). Any question as to the existence
of the Disability of Executive as to which Executive and the Company cannot
agree shall be determined in writing by a qualified independent physician
mutually acceptable to Executive and the Company. If Executive and the
Company cannot agree as to a qualified independent physician, each shall
appoint such a physician and those two physicians shall select a third who
shall make such determination in writing. The determination of Disability
made in writing to the Company and Executive shall be final and conclusive
for all purposes of the Agreement. Upon termination of Executive's
employment hereunder for either Disability or death, Executive or his
estate (as the case may be) shall continue to receive the payments and
benefits to which Executive is entitled pursuant to Sections 3 through 7
hereof (hereinafter the "Contract Payments") for one year from the date of
such termination. In addition, Executive shall be entitled to the
following:
(i) a cash payment equal to twelve (12) months of the Executive's
highest monthly car allowance or monthly average travel reimbursement
in effect within the six (6) month period immediately prior to the
termination, not to exceed Twelve Thousand and 00/100 ($12,000)
Dollars;
(ii) the maximum/highest benefits which the Executive was
receiving at any time during a two-year period prior to termination,
relating to health insurance, accident insurance, long-term care, life
insurance and disability, shall continue for one (1) year beyond the
date of termination of the Executive's employment;
(iii) any stock options granted to the Executive which have not
vested on or prior to termination date shall immediately vest as of
the date of termination; and
(iv) cash payment for accrued but unpaid vacation and sick days.
(c) Without Cause by the Company. If Executive's employment is
terminated by the Company without "Cause" (other than by reason of
Disability or death), Executive shall receive in a single lump sum as soon
as practicable but not later than 30 days following such termination equal
to (A) in the case of termination other than a Change in Control or
Potential Change in Control, the equivalent of one year of Base Salary and
Bonus and (B) in the case of termination as a result of a Change in Control
or Potential Change in Control, the greater of (1) the amount of Base
Salary, Bonus and any additional compensation received by Executive
hereunder during the three years prior to such termination and (2) 3 times
annual Base Salary and Bonus, payable in each case in cash or common stock
of the Company, at the option of the Executive. For purposes hereof, common
stock of the Company will be deemed to have a value equal to average VWAP
for the twelve month period ending six months prior to termination and will
be subject to share withholding, as specified by Executive.
Notwithstanding anything to the contrary set forth herein, in no event
shall more than 3,000,000 shares be issued pursuant to this Section 8(c).
In addition, Executive shall be entitled to the following:
(i) a cash payment equal to the higher of
(A) twelve (12) months of the Executive's highest monthly
car allowance or monthly average travel reimbursement in effect
within the six (6) month period immediately prior to the Change
in Control or Potential Change in Control, not to exceed Twelve
Thousand and 00/100 ($12,000) Dollars; or
(B) twelve (12) months of the Executive's highest monthly
car allowance or monthly average travel reimbursement in effect
within the six (6) month period immediately prior to the date the
Executive terminates his employment for any reason, not to exceed
Twelve Thousand and 00/100 ($12,000) Dollars.
(ii) the maximum/highest benefits which the Executive was
receiving at any time during a two-year period prior to termination,
relating to health insurance, accident insurance, long-term care, life
insurance and disability, shall continue for one (1) year beyond the
date of termination of the Executive's employment;
(iii) any stock options granted to the Executive which have not
vested on or prior to termination date shall immediately vest as of
the date of termination; and
(iv) cash payment for accrued but unpaid vacation and sick days.
The foregoing payments may be delayed to the extent necessary to comply
with Section 409A of the Internal Revenue Code (the "Code") with respect to
"specified employees" (as such term is defined in Section 409A of the Code). Any
such delayed or suspended payment(s) shall be paid as soon as administratively
feasible thereafter and all other such payment(s) shall resume as scheduled.
Termination without Cause by the Company shall include a termination of
employment by Executive for "Good Reason".
For purposes of this Agreement "Good Reason" means:
(i) Executive is not elected or appointed to, or is removed from,
the position described in Section 2 hereof or ceases to serve as
Chairman of the Board for any reason other than for Cause or by reason
of Executive's death or Disability or voluntary resignation;
(ii) Executive is assigned duties and responsibilities that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with Executive's position as described in
Section 2 hereof;
(iii) the Company fails to pay Executive any amounts otherwise
vested and due hereunder and such failure continues for ten business
days following notice to the Company thereof;
(iv) Executive's Base Salary is reduced or his Employee Benefits
as provided in Section 6 are reduced;
(v) Executive's office is relocated outside of a thirty mile
radius of Greenwich, Connecticut without his consent;
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 10(h) hereof; or
(vii) a Change in Control, or Potential Change in Control, each
as defined below, shall occur.
A "Change in Control" shall be deemed to occur if (A) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act")) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act as in effect
on the date hereof, except that a person shall be deemed to be the "beneficial
owner" of all shares that any such person has the right to acquire pursuant to
any agreement or arrangement or upon exercise of conversion rights, warrants,
options or otherwise, without regard to the sixty day period referred to in such
Rule), directly or indirectly, of securities representing 25% or more of the
combined voting power of the Company's then outstanding securities, (B) at any
time during any period of two consecutive years (not including any period prior
to the execution of this Agreement ), individuals who at the beginning of such
period constituted the Board and any new directors, whose election by the Board
or nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the Company directors then still in office who
either were the Company directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof or (C) the Company shall consolidate,
merge or exchange securities with any other entity. Notwithstanding the
foregoing, however, a Change in Control shall not be deemed to occur merely by
reason of an acquisition of Company securities by, or any consolidation, merger
or exchange of securities with, any entity that, immediately prior to such
acquisition, consolidation, merger or exchange of securities, was a
"subsidiary", as such term is defined below.
For these purposes, the term "subsidiary" means (i) any corporation of
which 95% of the capital stock of such corporation is owned, directly or
indirectly, by the Company and (ii) any unincorporated entity in respect of
which the Company has, directly or indirectly, an equivalent degree of
ownership.
A "Potential Change in Control" of the Company shall be deemed to have
occurred upon the happening of any one of the following events (D) any person
commences a tender offer, which if consummated would result in such person
becoming the beneficial owner of more than fifty percent (50%) of the Company's
voting securities, (E) proxies are solicited by anyone other than the Company or
any of its subsidiaries: (1) for the election of directors of the Company, or
(2) seeking shareholder approval of a plan of reorganization, merger, or
consolidation of the Company with one or more corporations as a result of which
the outstanding shares subject to the plan or transaction are to be exchanged
for or converted into cash, property or securities not issued by the Company, or
(F) the execution by the Company of an agreement, the consummation of which
would result in a Change in Control of the Company.
(d) Termination by Executive. If Executive terminates his employment
with the Company for any reason (other than Good Reason, as defined in
Subsection 8(c)), Executive shall be entitled to the same payments he would
have received if his employment had been terminated by the Company for
Cause.
(e) Notice of Termination. Any purported termination of employment by
the Company or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 10(i)
hereof. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
9. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by the laws
of the State of New York, as in effect at the time of the subject act or
omission, and Executive shall be entitled to the protection of any insurance
policies the Company may elect to maintain generally for the benefit of its
directors and officers (and to the extent the Company maintains such an
insurance policy or policies, Executive shall be covered by such policy or
policies, in accordance with its or their terms to the maximum extent of the
coverage available for any Company officer or director), against all costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representatives (including but not limited to any judgment entered by a court of
law) at the time such costs, charges and expenses are incurred or sustained, in
connection with any action, suit or proceeding to which Executive (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director, officer or employee of the Company, or any subsidiary
of the Company, or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company. Executive's rights
under this Section 9 shall continue without time limit for so long as he may be
subject to any such liability, whether or not his term of employment may have
ended.
10. Miscellaneous.
(a) Governing Law; No Liability of Executive. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York. Executive shall not be subject to liability for breach of this
Agreement by reason of his termination of his employment hereunder.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by
the Company. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject
matter herein other than those expressly set forth herein. This Agreement
may not be altered, modified, or amended except by written instrument
signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a
waiver of such party's rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
(d) Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive
and shall be assignable by the Company only with the consent of Executive;
provided that no such assignment by the Company shall relieve the Company
of any liability hereunder, whether accrued before or after such
assignment.
(f) No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and no such employment, if obtained, or
compensation or benefits payable in connection therewith, shall reduce any
amounts or benefits to which Executive is entitled hereunder.
(g) Arbitration. Any dispute between the parties to this Agreement
arising from or relating to the terms of this Agreement or the employment
of Executive by the Company shall be submitted to arbitration in New York
State under the auspices of the American Arbitration Association.
(h) Successors; Binding Agreement.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Such assumption and
agreement shall be obtained prior to the effectiveness of any such
succession. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise. Prior to a Change in
Control, the term "Company" shall also mean any affiliate of the
Company to which Executive may be transferred and the Company shall
cause such successor employer to be considered the "Company" bound by
the terms of this Agreement and this Agreement shall be amended to so
provide. Following a Change in Control the term "Company" shall not
mean any affiliate of the Company to which Executive may be
transferred unless Executive shall have previously approved of such
transfer in writing, in which case the Company shall cause such
successor employer to be considered the "Company" bound by the terms
of this Agreement and this Agreement shall be amended to so provide.
(ii) This Agreement shall inure to the benefit of and be binding
upon personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive
should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the devisee, legatee or other designee of
Executive or, if there is no such designee, to the estate of
Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the execution page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of the Board with a copy to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation;
provided that any common stock warrants or options issued pursuant hereto
shall be subject to share withholding as specified by Executive.
(k) Counterparts; Effectiveness. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective on the Closing Date.
11. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of this Agreement would be inadequate and, in recognition of this
fact, Executive agrees that, in the event of such a breach or threatened breach,
in addition to any remedies at law, the Company, without posting any bond, shall
be entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
D. Xxxxxx Xxxxxxxxx
---------------------------------------
00 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxxxx Electronics, Inc.
By:-----------------------------------
Title:
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
EXHIBIT A [TO THE EMPLOYMENT AGREEMENT]
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
XXXXXX ELECTRONICS, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, _____________ (the "Holder"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the "Initial Exercise Date") and on or
prior to the close of business on [March 15th of the next year] (the
"Termination Date") but not thereafter, to subscribe for and purchase from
Xxxxxx Electronics, Inc., a New York corporation (the "Company"), up to ______
shares (the "Warrant Shares") of Common Stock, par value $.01 per share, of the
Company (the "Common Stock"). The purchase price of one share of Common Stock
under this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated April 17, 2006, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within
3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise
is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the
date of such purchases. The Company shall deliver any objection to any
Notice of Exercise Form within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $[ ]*, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. At the option of the Holder, this Warrant may
also be exercised at such time by means of a "cashless exercise" in which
the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of
a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, unless otherwise elected by the Holder, this Warrant shall be
automatically exercised via cashless exercise.
d) [Reserved].
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent
of the Company to the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is a
participant in such system, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise within 3
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required) and payment of
the aggregate Exercise Price as set forth above ("Warrant Share
Delivery Date"). This Warrant shall be deemed to have been exercised
on the date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section
2(e)(vii) prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights
of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
iv. Rescission Rights. If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by
the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its
broker to purchase (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 which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. 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.
vi. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof,
as applicable, at any time while this Warrant is outstanding, shall sell or
grant any option to purchase or sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Exercise Price
(such lower price, the "Base Share Price" and such issuances collectively,
a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per
share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is
less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced to
equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such adjustment.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments shall
be made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share
Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.
c) Subsequent Rights Offerings. If the Company, at any time while the
Warrant is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) 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 (D) 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 (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the 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. To the extent
necessary to effectuate the foregoing provisions, 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 exercise such warrant into Alternate
Consideration. 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 Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
f) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
g) Voluntary Adjustment By Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
h) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company
shall promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of
a Variable Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder
is entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the
event triggering such notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement and the consent of
the Company, this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part,
upon surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled.
A Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. 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.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a "qualified institutional buyer"
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(ii).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation,
amending its certificate of incorporation 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
actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant, and
(c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company
to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in
the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: _______, 2006
XXXXXX ELECTRONICS, INC.
By:-------------------------------------------
Name:
Title:
NOTICE OF EXERCISE
TO: [_______________________
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth
in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
--------------------------------
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
--------------------------------
--------------------------------
--------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
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Signature of Authorized Signatory of Investing Entity:
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Name of Authorized Signatory:
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Title of Authorized Signatory:
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Date:
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
------------------------------------------------------- whose address is
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: -----------------,----
------------------
Holder's Signature: ---------------------------
Holder's Address: ---------------------------
Signature Guaranteed: ----------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
* determined in accordance with the terms of the Employment Agreement
EXHIBIT E
Trinity Investment Partners, LLC
April 17, 2006
Xxxxxx X. Xxxxxxxxx
Chief Financial Officer
Xxxxxx Electronics, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Dear Xxx:
We are pleased to confirm the terms under which Trinity Investment Partners, LLC
("Trinity") will provide consulting and advisory services to Xxxxxx Electronics,
Inc. (the "Company").
Nature of the Assignment
During the term of our engagement we will analyze the current capital structure
of the Company and assist in evaluating and structuring potential capital
raising transactions.
Fee Arrangements
In consideration for its services hereunder, (i) simultaneously with execution
of a definitive agreement in connection with a capital raising transaction
providing for $4,000,000 of financing (the "Financing"), the Company will issue
to Trinity 2,000,000 Series B Warrants and 3,500,000 Series C Warrants with the
terms set forth in Exhibits A and B hereto, such Warrants to become exercisable
only upon receipt of funds in connection with the Financing and (ii) upon
receipt of funds in connection with the Financing, the Company will pay to
Trinity $250,000 in cash. If, following execution of a definitive agreement in
connection with the Financing, the Financing does not close within six months of
the date hereof solely as a result of the acceptance by, or consent of, the
Board of Directors and/or shareholders of the Company of or relating to an offer
from a third party to purchase a majority in interest of the outstanding shares
of common stock of the Company (or other similar transaction resulting in a
change of control including, without limitation, by way of merger where the
Company has accepted or consented to such transaction), then the Company will
pay to Trinity $550,000 to offset expenses related to its services hereunder;
provided further, however, that the payment of $550,000 shall not be made in
connection with the Schedule TO filed by Modern Technology Corp. on April 5,
2006 and the related tender offer.
Other Matters
Trinity will act under this agreement as an independent contractor with duties
solely to the Company. Because we will be acting on your behalf in this
capacity, it is our practice to receive indemnification. A copy of our standard
indemnification form is attached in the form of Appendix A to this letter.
Any advice or opinions provided by Trinity may not be disclosed or referred to
publicly or to any third party without our prior written consent.
The shares of common stock of the Company issuable upon exercise of the Series B
and Series C Warrants will be entitled to the benefit of a Registration Rights
Agreement in the form attached as Appendix B hereto.
Very truly yours,
TRINITY INVESTMENT PARTNERS, LLC
By:
---------------------------------
Name:
Title:
AGREED AND ACCEPTED:
XXXXXX ELECTRONICS, INC.
By:
------------------------------------------
Name:
Title:
APPENDIX A
The Company agrees to indemnify and hold harmless Trinity Investment Partners,
LLC, its affiliates and their respective officers, directors, employees, agents
and controlling persons (each an "Indemnified Person") from and against any and
all losses, claims, damages, liabilities and expenses, joint or several, to
which any such Indemnified Person may become subject arising out of or in
connection with the transactions contemplated by the letter agreement to which
this Annex A is attached (the "Agreement"), or any claim, litigation,
investigation or proceedings relating to the foregoing ("Proceedings")
regardless of whether any of such Indemnified Persons is a party thereto, and to
reimburse such Indemnified Persons for any legal or other expenses as they are
incurred in connection with investigating, responding to or defending any of the
foregoing, provided that the foregoing indemnification will not, as to any
Indemnified Person, apply to losses, claims, damages, liabilities or expenses to
the extent that they are finally judicially determined to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. The Company
also agrees that no Indemnified Person shall have any liability (whether direct
or indirect, in contract, tort or otherwise) to the Company for or in connection
with the Agreement, any transactions contemplated thereby or Trinity Investment
Partners, LLC's role or services in connection therewith, except to the extent
that any liability for losses, claims, demands, damages, liabilities or expenses
incurred by the Company are finally judicially determined to have resulted from
the gross negligence or willful misconduct of such Indemnified Person.
If for any reason the foregoing indemnification is unavailable to any
Indemnified Person or insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
the one hand and such Indemnified Person on the other hand but also the relative
fault of the Company and such Indemnified Person, as well as any relevant
equitable considerations. It is hereby agreed that the relative benefits to the
Company on the one hand and all Indemnified Persons on the other hand shall be
deemed to be in the same proportion as (i) the total value received or proposed
to be received by the Company pursuant to the Financing (whether or not
consummated) bears to (ii) the fee paid or proposed to be paid to Trinity
Investment Partners, LLC under this Agreement. The indemnity, reimbursement and
contribution obligations of the Company under these paragraphs shall be in
addition to any liability which the Company may otherwise have to an Indemnified
Person and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company and any Indemnified
Person.
Promptly after receipt by an Indemnified Person of notice of the commencement of
any Proceedings, such Indemnified Person will, if a claim is to be made
hereunder against the Company in respect thereof, notify the Company in writing
of the commencement thereof; provided that (i) the omission so to notify the
Company will not relieve it from any liability which it may have hereunder
except to the extent it has been materially prejudiced by such failure and (ii)
the omission so to notify the Company will not relieve it from any liability
which it may have to an Indemnified Person otherwise than on account of this
indemnity agreement. In case any such Proceedings are brought against any
Indemnified Person and it notifies the Company of the commencement thereof, the
Company will be entitled to participate therein and, to the extent that it may
elect by written notice delivered to the Indemnified Person, to assume the
defense thereof with counsel reasonably satisfactory to such Indemnified Person;
provided that if the defendants in any such Proceedings include both the
Indemnified Person and the Company and the Indemnified Person shall have
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Company, the Indemnified Person
shall have the right to select separate counsel to assert such legal defenses
and to otherwise participate in the defense of such Proceedings on behalf of
such Indemnified Person. Upon receipt of notice from the Company to such
Indemnified Person of its election so to assume the defense of such Proceedings
and approval by the Indemnified Person of counsel, the Company will not be
liable to such Indemnified Person for expenses incurred by the Indemnified
Person in connection with the defense thereof (other than reasonable costs of
investigation) unless (i) the Indemnified Person shall have employed separate
counsel in connection with the assertion of legal defenses in accordance with
the proviso to the immediately preceding sentence (it being understood, however,
that the Company shall not be liable for the expenses of more than one separate
counsel (in addition to any local counsel), approved by Trinity Investment
Partners, LLC, representing the Indemnified Persons who are parties to such
Proceedings), (ii) the Company shall not have employed counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person
within a reasonable time after notice of commencement of the Proceedings or
(iii) the Company has authorized in writing the employment of counsel for the
Indemnified Person.
The Company shall not be liable for any settlement of any Proceedings effected
without its written consent (which consent shall not be unreasonably withheld),
but if settled with its written consent or if there be a final judgment for the
plaintiff in any such Proceedings, the Company agrees to indemnify and hold
harmless each Indemnified Person from and against any and all losses, claims,
damages, liabilities and expenses by reason of such settlement or judgment in
accordance with the provisions of this Annex A. Notwithstanding the immediately
preceding sentence, if at any time an Indemnified Person shall have requested
the Company to reimburse such Indemnified Person for legal or other expenses in
connection with investigating, responding to or defending any Proceedings as
contemplated by this Annex A, the Company shall be liable for any settlement of
any Proceedings effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by the Company of such request for
reimbursement and (ii) the Company shall not have reimbursed such Indemnified
Person in accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of an Indemnified Person
(which consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened Proceedings in respect of which indemnity could have been
sought hereunder by such Indemnified Person unless (x) such settlement includes
an unconditional release of such Indemnified Person in form and substance
satisfactory to such Indemnified Person from all liability on claims that are
the subject matter of such Proceedings and (y) does not include any statement as
to or any admission of fault, culpability or a failure to act by or on behalf of
any Indemnified Person.
Capitalized terms used but not defined in this Annex A have the meanings
assigned to such terms in the Agreement.
APPENDIX B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered into
as of April 17, 2006 among Xxxxxx Electronics, Inc., a New York corporation (the
"Company"), and the several parties signatory hereto.
This Agreement is made pursuant to the Consulting Agreement dated the date
hereof between Trinity Investment Partners, LLC and the Company and the
Employment Agreement dated as of the date hereof between D. Xxxxxx Xxxxxxxxx and
the Company (collectively the "Transaction Documents").
The Company and each Purchaser hereby agrees as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement dated as of the date hereof between
the Company and the parties thereto (the "Purchase Agreement") shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial Registration
Statement required to be filed hereunder, the 90th calendar day following
the Filing Date and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 60th calendar day
following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required
hereunder; provided, however, in the event the Company is notified by the
Commission that one of the above Registration Statements will not be
reviewed or is no longer subject to further review and comments, the
Effectiveness Date as to such Registration Statement shall be the fifth
Trading Day following the date on which the Company is so notified if such
date precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 190th calendar day following the date on
which the registration statement filed pursuant to the Registration Rights
Agreement dated as of the date hereof among the Company and the several
purchasers signatory thereto (the "Purchasers' Registration Rights
Agreement") is declared effective and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c), the
30th day following the date on which the Company first knows, or reasonably
should have known that such additional Registration Statement is required
hereunder.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in Section
2(a).
"Prospectus" means the prospectus included in a 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 a 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.
"Registrable Securities" means, as of the date in question, (i) all of
the shares of Common Stock issued, or shares of Common Stock issuable upon
exercise of options or warrants issued, in each case pursuant to the
Transaction Documents (ii) any additional shares issuable in connection
with any anti-dilution provisions associated with such options or warrants
and (iii) 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 registration statements required to
be filed hereunder and any additional registration statements contemplated
by Section 3(c), 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.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set forth
in Section 3(a).
2. Shelf Registration
(a) On or within 10 calendar days prior to each Filing Date, the
Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering the resale of 130% of the Registrable Securities on such
date for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on another appropriate form
in accordance herewith) and shall contain (unless otherwise directed by at
least an 85% majority in interest of the Holders) substantially the "Plan
of Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best commercial efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to
the applicable Effectiveness Date, and shall use its best commercial
efforts to keep such Registration Statement continuously effective under
the Securities Act until all Registrable Securities covered by such
Registration Statement have been sold, or may be sold without volume
restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 pm Eastern Time on a
Trading Day. The Company shall immediately notify the Holders via facsimile
of the effectiveness of a Registration Statement on the same Trading Day
that the Company telephonically confirms effectiveness with the Commission,
which shall be the date requested for effectiveness of a Registration
Statement. The Company shall, by 9:30 am Eastern Time on the Trading Day
after the Effective Date (as defined in the Purchase Agreement), file a
final Prospectus with the Commission as required by Rule 424. Failure to so
notify the Holder within 1 Trading Day of such notification of
effectiveness or failure to file a final Prospectus as aforesaid shall be
deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a), 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 of 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 not subject to
further review, or (iii) prior to its Effectiveness Date, the Company fails
to file a pre-effective amendment and otherwise respond in writing to
comments made by the Commission in respect of such Registration Statement
within 10 calendar days after the receipt of comments by or notice from the
Commission that such amendment is required in order for a Registration
Statement to be declared effective, or (iv) a Registration Statement filed
or required to be filed hereunder is not declared effective by the
Commission by its Effectiveness Date, or (v) after the Effectiveness Date,
a Registration Statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it is required to be
effective, or the Holders are otherwise not permitted to utilize the
Prospectus therein to resell such Registrable Securities for more than 15
consecutive calendar days or more than an aggregate of 20 calendar days
during any 12-month period (which need not be consecutive calendar days)
(any such failure or breach being referred to as an "Event", and for
purposes of clause (i) or (iv) 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 clause (iii) the date which such 10 calendar
day period is exceeded, or for purposes of clause (v) the date on which
such 15 or 20 calendar day period, as applicable, is exceeded being
referred to as "Event Date"), then in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date
and on each monthly anniversary of each such Event Date (if the applicable
Event shall not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to $0.01 for each
Registrable Security then held by such Holder. If the Company fails to pay
any partial 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 18% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. The partial liquidated damages pursuant
to the terms hereof shall apply on a daily pro-rata basis for any portion
of a month prior to the cure of an Event.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than 5 Trading Days prior to the filing of each
Registration Statement and not less than one 1 Trading Day prior to the
filing of 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 each
Holder 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 reasonable review of such Holders, 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 each Holder 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 the Holders of a majority of
the Registrable Securities shall reasonably object in good faith, provided
that, the Company is notified of such objection in writing no later than 5
Trading Days after the Holders have been so furnished copies of a
Registration Statement or 1 Trading Day after the Holders have been so
furnished copies of any related Prospectus or amendment or supplement
thereto. Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") not less than two Trading Days prior to the
Filing Date or by the end of the fourth Trading Day following the date on
which such Holder receives draft materials in accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
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 (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to a Registration Statement or
any amendment thereto and as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement (provided that the Company
may excise any information contained therein which would constitute
material non-public information as to any Holder which has not executed a
confidentiality agreement with the Company); 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 a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 90% of the number of shares of Common Stock
then registered in a Registration Statement, then the Company shall file as
soon as reasonably practicable but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the resale by
the Holders of not less than 130% of the number of such Registrable
Securities.
(d) Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied
by an instruction to suspend the use of the Prospectus until the requisite
changes have been made) as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than 1 Trading Day prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later
than one Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any
revisions to a Registration Statement, Prospectus or other documents so
that, in the case of a Registration Statement or the Prospectus, as the
case may be, 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 light of the circumstances under which
they were made, not misleading; and (vi) the occurrence or existence of any
pending corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company,
makes it not in the best interest of the Company to allow continued
availability of a Registration Statement or Prospectus; provided that any
and all of such information shall remain confidential to each Holder until
such information otherwise becomes public, unless disclosure by a Holder is
required by law; provided, further, notwithstanding each Holder's agreement
to keep such information confidential, the Holders make no acknowledgement
that any such information is material, non-public information.
(e) Use its best commercial efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness
of a Registration Statement, or (ii) any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder, without charge, at least one conformed
copy of each such Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference to the extent requested by
such Person, 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.
(g) Subject to the terms of this Agreement, the Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(d).
(h) If NASDR Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale by a Holder, the Company shall (i) make an Issuer
Filing with the NASDR, Inc. Corporate Financing Department pursuant to
proposed NASDR Rule 2710(b)(10)(A)(i), (ii) respond within five Trading
Days to any comments received from NASDR in connection therewith, and (iii)
pay the filing fee required in connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with
the selling Holders in connection with the registration or qualification
(or exemption from the Registration or qualification) of such Registrable
Securities for the resale by the Holder under the securities or Blue Sky
laws of such jurisdictions within the United States as any Holder
reasonably requests in writing, to keep each registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to
do any and all other acts or things reasonably necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by
each Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it
is not then so qualified, subject the Company to any material tax in any
such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders 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 the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may request.
(k) Upon the occurrence of any event contemplated by this Section 3,
as promptly as reasonably possible under the circumstances taking into
account the Company's good faith assessment of any adverse consequences to
the Company and its stockholders of the premature disclosure of such event,
prepare a supplement or amendment, including a post-effective amendment, to
a 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 a 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 light of
the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (iii) through (vi)
of Section 3(d) above to suspend the use of any Prospectus until the
requisite changes to such Prospectus have been made, then the Holders shall
suspend use of such Prospectus. The Company will use its best commercial
efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable. The Company shall be entitled to exercise its right
under this Section 3(k) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial liquidated
damages pursuant to Section 2(b), for a period not to exceed 60 calendar
days (which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the
natural persons thereof that have voting and dispositive control over the
Shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such information
within three Trading Days of the Company's request, any liquidated damages
that are accruing at such time as to such Holder only shall be tolled and
any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to
the Company.
(n) The Company agrees to list the Registrable Securities on The
Nasdaq Capital Market or any applicable exchange on which the Common Stock
is then listed for trading.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities) and (C) if
not previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions of any Holder or, except to
the extent provided for in the Transaction Documents, any legal fees or other
costs of the Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder,
the officers, directors, members, partners, 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 (and any other Persons with a
functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each of them,
each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, shareholders, partners, agents and employees (and any
other Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of such title or any other title) of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to (1)
any untrue or alleged untrue statement of a material fact contained in a
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 light of the circumstances under which they were
made) not misleading, or (2) any violation or alleged violation by the
Company of the Securities Act, Exchange Act or any state securities law, or
any rule or regulation thereunder, in connection with the performance of
its obligations under this Agreement, except to the extent, but only to the
extent, that (i) such untrue statements or omissions arise out of or are
based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that
such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or such form of Prospectus or in any amendment
or supplement thereto (it being understood that the Holder has reviewed and
approved Annex A hereto for this purpose) or (ii) in the case of an
occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the
use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding arising from or
in connection with the transactions contemplated by this Agreement of which
the Company is aware.
(b) Indemnification by Holders. Each Holder 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 incurred, to the extent arising out of or based
solely upon: (x) such Holder's failure to comply with the prospectus
delivery requirements of the Securities Act or (y) any untrue or alleged
untrue statement of a material fact contained in any 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 not
misleading (i) 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 Holder to the Company specifically for inclusion in such
Registration Statement or such Prospectus or (ii) to the extent that such
information relates to such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing
by such Holder expressly for use in a Registration Statement (it being
understood that the Holder has reviewed and approved Annex A hereto for
this purpose), 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 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder 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 have the right to 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 prejudiced the Indemnifying
Party.
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: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material 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 the reasonable fees and expenses of no more
than one separate 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 or delayed. 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.
Subject to the terms of this Agreement, all reasonable 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; provided, that
the Indemnified Party shall promptly reimburse the Indemnifying Party for
that portion of such fees and expenses applicable to such actions for which
such Indemnified Party is judicially determined to be not entitled to
indemnification hereunder.
(d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified
Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, 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 this Agreement, any reasonable
attorneys' or other fees or expenses incurred by such party in connection
with any Proceeding to the extent such party would have been indemnified
for such fees or expenses if the indemnification provided for in this
Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(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 5(d),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, except in the case of fraud by such Holder.
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. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their respective obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise
all rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall not assert or shall waive the defense that a
remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the initial Registration Statement other than
the Registrable Securities. Other than the registration statement required
pursuant to the Purchasers' Registration Rights Agreement, the Company
shall not file any other registration statements until the initial
Registration Statement required hereunder is declared effective by the
Commission, provided that this Section 6(b) shall not prohibit the Company
from filing amendments to registration statements already filed.
(c) Compliance. Each Holder covenants and 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 a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition of
Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(d)(iii)
through (vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under a Registration Statement until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus (as it may have been supplemented or amended) may be resumed.
The Company will use its best commercial efforts to ensure that the use of
the Prospectus may be resumed as promptly as it practicable. The Company
agrees and acknowledges that any periods during which the Holder is
required to discontinue the disposition of the Registrable Securities
hereunder shall be subject to the provisions of Section 2(b).
(e) 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 the
stock option or other employee benefit plans, then the Company shall send
to each Holder a written notice of such determination and, if within
fifteen days after the date of such notice, any such Holder shall so
request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Holder
requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights; provided, however, that
the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a
then effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and each Holder of the then outstanding Registrable Securities.
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 Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however, that
the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set
forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign (except by merger) its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its Subsidiaries, on or after the date of this Agreement, enter into
any agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into
any agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.
(j) Execution and Counterparts. 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 or by
e-mail delivery of a ".pdf" format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such
facsimile or ".pdf" signature page were an original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined in accordance with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any other remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement 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.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Holder
pursuant hereto or thereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Holders are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Holder shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and
it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
********************
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
XXXXXX ELECTRONICS, INC.
By:_________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO HRVE RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
ANNEX A
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common stock
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the Nasdaq Capital
Market or any other 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. A Selling Stockholder 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 settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
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, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the 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 the 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 and any broker-dealers or agents that are involved
in selling the shares 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 purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
Annex B
XXXXXX ELECTRONICS, INC.
Selling Securityholder Notice and Questionnaire
The undersigned beneficial owner of common stock, par value $.01 per share
(the "Common Stock"), of Xxxxxx Electronics, Inc., a New York corporation (the
"Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
April __, 2006 (the "Registration Rights Agreement"), among the Company and the
parties thereto. A copy of the Registration Rights Agreement is available from
the Company upon request at the address set forth below. All capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
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(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities Listed in Item 3 below are held:
--------------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a natural
person who directly or indirectly alone or with others has power to
vote or dispose of the securities covered by the questionnaire):
--------------------------------------------------------------------
2. Address for Notices to Selling Securityholder:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
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Telephone:--------------------------------------------------------------------
Fax:--------------------------------------------------------------------------
Contact Person:---------------------------------------------------------------
3. Beneficial Ownership of Registrable Securities:
(a) Type and Number of Registrable Securities beneficially owned (not
including the Registrable Securities that are issuable pursuant to the
Purchase Agreement):
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------------------------------------------------------------------------------
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4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable Securities
as compensation for investment banking services to the Company.
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of business,
and at the time of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
---------------------------------------------------------------
---------------------------------------------------------------
6. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
---------------------------------------------------------------
---------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
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By:
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Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
EXHIBIT A [TO THE CONSULTING AGREEMENT]
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
SERIES B
COMMON STOCK PURCHASE WARRANT
To Purchase 2,000,000 Shares of Common Stock of
XXXXXX ELECTRONICS, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, Trinity Investment Partners, LLC (the "Holder"), is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the Closing Date (the "Initial
Exercise Date") and on or prior to the close of business on the 7 year
anniversary of the Initial Exercise Date (the "Termination Date") but not
thereafter, to subscribe for and purchase from Xxxxxx Electronics, Inc., a New
York corporation (the "Company"), up to 2,000,000 shares (the "Warrant Shares")
of Common Stock, par value $.01 per share, of the Company (the "Common Stock").
The purchase price of one share of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated April 17, 2006, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within
3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise
is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the
date of such purchases. The Company shall deliver any objection to any
Notice of Exercise Form within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $0.70, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of
a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, to the extent not previously exercised, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d) [Reserved]
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent
of the Company to the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is a
participant in such system, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise within 3
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required) and payment of
the aggregate Exercise Price as set forth above ("Warrant Share
Delivery Date"). This Warrant shall be deemed to have been exercised
on the date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section
2(e)(vii) prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights
of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
iv. Rescission Rights. If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by
the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its
broker to purchase (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 which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. 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.
vi. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof,
as applicable, at any time while this Warrant is outstanding, shall sell or
grant any option to purchase or sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Exercise Price
(such lower price, the "Base Share Price" and such issuances collectively,
a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per
share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is
less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced to
equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such adjustment.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments shall
be made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share
Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.
c) Subsequent Rights Offerings. If the Company, at any time while the
Warrant is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) 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 (D) 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 (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the 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. To the extent
necessary to effectuate the foregoing provisions, 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 exercise such warrant into Alternate
Consideration. 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 Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
f) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
g) Voluntary Adjustment By Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
h) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company
shall promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of
a Variable Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder
is entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the
event triggering such notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. 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.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a "qualified institutional buyer"
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(ii).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation,
amending its certificate of incorporation 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
actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant, and
(c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company
to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in
the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: April 17, 2006
XXXXXX ELECTRONICS, INC.
By:__________________________________________
Name:
Title:
NOTICE OF EXERCISE
TO: [_______________________
(1)______The undersigned hereby elects to purchase ________ Warrant Shares
of the Company pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
(2)______Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth
in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
------------------------------
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
------------------------------
------------------------------
------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:
------------------------------------------------------
Name of Authorized Signatory:
------------------------------------------------------
Title of Authorized Signatory:
------------------------------------------------------
Date:
------------------------------------------------------
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
-------------------------------------------------------------- whose address is
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: ----------------, -----------
Holder's Signature:---------------------------
Holder's Address:-----------------------------
-----------------------------
Signature Guaranteed: ----------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT B [TO THE CONSULTING AGREEMENT]
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
SERIES C
COMMON STOCK PURCHASE WARRANT
To Purchase 3,500,000 Shares of Common Stock of
XXXXXX ELECTRONICS, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, Trinity Investment Partners, LLC (the "Holder"), is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the Closing Date (the "Initial
Exercise Date") and on or prior to the close of business on the 7 year
anniversary of the Initial Exercise Date (the "Termination Date") but not
thereafter, to subscribe for and purchase from Xxxxxx Electronics, Inc., a New
York corporation (the "Company"), up to 3,500,000 shares (the "Warrant Shares")
of Common Stock, par value $.01 per share, of the Company (the "Common Stock").
The purchase price of one share of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated April 17, 2006, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within
3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise
is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the
date of such purchases. The Company shall deliver any objection to any
Notice of Exercise Form within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be:
------------------------ ---------------------
Series B
Exercise Warrants
Price Exercisable
------------------------ ---------------------
$0.80 350,000
------------------------ ---------------------
0.90 350,000
------------------------ ---------------------
1.00 350,000
------------------------ ---------------------
1.10 350,000
------------------------ ---------------------
1.20 350,000
------------------------ ---------------------
1.30 350,000
------------------------ ---------------------
1.40 350,000
------------------------ ---------------------
1.50 350,000
------------------------ ---------------------
1.60 350,000
------------------------ ---------------------
1.70 350,000
------------------------ ---------------------
in each case, subject to adjustment hereunder (the "Exercise Price").
--------------
c) Cashless Exercise. If at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of
a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, to the extent not previously exercised, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d) [Reserved]
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent
of the Company to the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is a
participant in such system, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise within 3
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required) and payment of
the aggregate Exercise Price as set forth above ("Warrant Share
Delivery Date"). This Warrant shall be deemed to have been exercised
on the date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section
2(e)(vii) prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights
of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
iv. Rescission Rights. If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by
the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its
broker to purchase (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 which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. 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.
vi. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) [Reserved]
c) Subsequent Rights Offerings. If the Company, at any time while the
Warrant is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) 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 (D) 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 (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the 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. To the extent
necessary to effectuate the foregoing provisions, 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 exercise such warrant into Alternate
Consideration. 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 Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
f) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
g) Voluntary Adjustment By Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
h) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company
shall promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of
a Variable Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder
is entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the
event triggering such notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) Warrant Register. 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.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a "qualified institutional buyer"
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(ii).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation,
amending its certificate of incorporation 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
actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant, and
(c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company
to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in
the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: April 17, 2006
XXXXXX ELECTRONICS, INC.
By:__________________________________________
Name:
Title:
Trinity Investment Partners, LLC
NOTICE OF EXERCISE
TO: [_______________________
(1) The undersigned hereby elects to purchase Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth
in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
--------------------------------------
The Warrant Shares shall be delivered to the following DWAC Account Number
or by physical delivery of a certificate to:
--------------------------------------
--------------------------------------
--------------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
------------------------------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:
------------------------------------------------------------------------------
Name of Authorized Signatory:
------------------------------------------------------------------------------
Title of Authorized Signatory:
------------------------------------------------------------------------------
Date:
------------------------------------------------------------------------------
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
------------------------------------------------------ whose address is
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: -----------------, -----
Holder's Signature: ------------------------------
Holder's Address: ------------------------------
------------------------------
Signature Guaranteed: --------------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT F
April 12, 2006
Xxxxxx Electronics, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxx
Xxxxxxx:
This letter will confirm our mutual agreement with respect to our engagement as
exclusive placement agent (the "Distributor") to act on behalf of Xxxxxx
Electronics, Inc. (the "Company") in obtaining financing for the Company to be
achieved on a best efforts basis in one or more tranches with the offer and sale
of up to Four Million Dollars ($4,000,000) worth of 8% Convertible Preferred
Securities (the "Securities"). Sales of the Securities will be in a private
placement exempt from registration under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder by the Securities and Exchange Commission.
The engagement hereunder shall be for a term of six months commencing upon the
execution of this letter by the Company, unless extended by our mutual
agreement. Upon non-renewal or termination of this Agreement, the Distributor
shall provide Company with a written list of parties with whom it has had
discussions in connection with any proposed transaction and/or financing.
Notwithstanding any such non-renewal or termination, the Distributor shall be
entitled to the compensation provided below with respect to any transaction or
financing which shall be consummated with any party named on such list within
eighteen (18) months following such non-renewal or termination.
You represent that no other offering is presently in progress by the Company
which has not been disclosed to us.
In consideration for placing the Securities, the Distributor or its designees
shall be entitled to a Distributor's Fee of 10% of the Gross Proceeds received
by the Company. On the first Three Million Five Hundred Thousand Dollars
($3,500,000), this Distributor's Fee shall be "paid in kind" in exactly the form
of securities purchased by investors in the transaction, currently contemplated
as an 8% Convertible Preferred Security, but without any warrants that accompany
the Preferred Securities purchased by investors in the financing. For all
Securities placed by the Distributor in excess of Three Million Five Hundred
Thousand Dollars ($3,500,001 and above), the Company agrees to pay the
Distributor a cash fee of 10%, which fee shall be paid directly to a charitable
organization of the Distributor's choosing, currently contemplated to be The
Center for Outreach and Services to the Autistic Community. In addition to the
Distributor's Fee payable hereunder, the Distributor shall be entitled to the
Warrants, as defined in Section 9 hereof. Notwithstanding anything to the
contrary set forth herein, it is understood and agreed that
1) Each Purchaser will be an "accredited investor" as said term is defined in
Rule 501 under Regulation D promulgated under the Securities Act.
2) The Company shall have the right in its sole discretion to reject any
subscription and to disapprove any person or entity which is proposed by the
Distributor to be a purchaser of any Securities.
3) Each Purchaser will, within two (2) business days after acceptance by the
Company of a Conditional Subscription Agreement or Securities Purchase Agreement
(each, a "Securities Purchase Agreement") in a form acceptable to the Company
and the Distributor, pay the purchase price for the Securities in escrow to the
Escrow Agent. The Escrow Agent is authorized to release the funds of each
Purchaser after all of the following conditions have been met:
a) the Company approves such Purchaser and Securities Purchase Agreement, which
have been submitted and signed by the Purchaser,
b) the Company has caused to be delivered to the Escrow Agent or his designee,
certificates representing the securities comprising the Securities purchased by
such Purchaser and an opinion of counsel or bringdown letter with respect to a
previously delivered opinion in a form acceptable to the Distributor, and
c) the Escrow Agent has received good funds representing the Purchase Price for
the Securities, and disbursed same to the Company.
4) The Company will cause certificates for the Securities purchased pursuant to
such Securities Purchase Agreement to be delivered to escrow agent (the "Escrow
Agent") pursuant to the terms of an Escrow Agreement.
5) The Distributor represents, warrants and agrees that each Purchaser of the
Securities will be qualified to purchase the Securities under the laws of the
jurisdiction in which such person resides and that the offer and sale of the
Securities will not violate the securities or other laws of such jurisdiction.
The Company agrees that with respect to any offerees resident in the United
States the Company will file, at the request of Distributor, any necessary
applications with any applicable securities regulatory authority, provided, that
all U.S. offerees will be accredited investors, and provided, further, that no
such filing shall require the Company to be generally qualified to do business
in any such jurisdiction.
6) The Distributor is a member of NASD and a licensed broker-dealer.
7) Distributor is an independent contractor, and is not the agent of the
Company. It is not authorized to bind the Company, or to make any
representations or warranties on behalf of the Company.
8) As more fully described in Exhibit A hereto, which is incorporated herein by
reference, each party hereto will indemnify and hold the other (including its
partners, agents, employees, and controlling persons within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended ( the "Exchange Act")) harmless from and against certain
claims, liabilities, losses, damages and expenses incurred, including fees and
disbursements of counsel, related to or arising out of this engagement. Exhibit
A will be executed and delivered simultaneously with this agreement.
9) The Company agrees to issue to Distributor or its designees at each Closing,
transferable divisible warrants (the "Warrants") to purchase Five Hundred
Thousand (500,000) shares of the Company's common stock. Such Warrants shall
bear an exercise price per share of common stock equal to $1.40 and shall be
exercisable immediately upon issuance, and for a period of seven (7) years
thereafter, with piggy-back registration rights for the underlying shares in the
Registration Statement.
10) The Company represents, warrants, and agrees that, in addition to the
warranties to be made by the Company to the Purchasers:
a) the Company hereby warrants that no other offerings are currently in
progress or contemplated;
b) the Company will use its best efforts to cause the common stock to be
issued as part of the Securities to be registered pursuant to the
Securities Act of 1933, and the Company will, following the
effectiveness of such registration statement, file all material
required to be filed pursuant to the Exchange Act on a timely basis;
c) the Securities will be offered and sold in compliance with all U.S.
securities laws and regulations; it being understood that this
representation, warranty and agreement is made relying exclusively on
the representations, warranties and agreements made by the Distributor
and/or Purchasers herein or in the applicable subscription documents.
The Company will, at its expense, make all filings required under the
Securities Act, the Exchange Act, applicable state securities laws and
the rules of any applicable domestic securities exchange or trading
market, if any;
d) all information furnished by the Company to Purchasers will not
contain any untrue statement of material fact or omit to state a
material fact required to be stated or necessary to make the
statements therein not misleading; provided however, that this
representation and warranty does not extend to written material
furnished to the Company by Distributor relating to Distributor or the
distribution process;
e) the Company has all requisite corporate power and authority to execute
and perform this agreement. All corporate action necessary for the
authorization, execution, delivery and performance of this agreement
and the transactions contemplated hereby have been taken. This
agreement constitutes a valid and binding obligation of the Company;
f) the execution and performance of this agreement by the Company and the
offer and sale of the Securities will not violate any provision of the
Certificate of Incorporation or By-laws of the Company or any material
agreement or other instrument to which the Company is party or by
which it is bound, and which violation(s) would have a material
adverse effect on the business or financial condition of the Company.
Any material necessary approvals, U.S. governmental and private, will
be obtained by the Company prior to the issuance of the Securities;
and
g) the Company makes no other representation or warranty with respect to
the Company, its finances, assets, business or prospects or otherwise,
except as expressly set forth herein or in the Securities Purchase
Agreements or as set forth in the Confidential Private Placement
Memorandum related to the offering. Distributor will advise each
Purchaser and potential Purchaser of the foregoing, and that such
Purchaser is relying on its own investigation with respect to all such
matters, and that it will be given reasonable access to any and all
material publicly available documents and Company personnel it may
require for such investigation.
11) This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by mail or delivered
personally or by courier and shall be effective five days after being placed in
the mail, if mailed, or upon receipt, if delivered personally or by courier, in
each case addressed to a party at such party's address as such party shall have
provided by notice to the other party. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
Dated: April 12, 2006
VFINANCE INVESTMENTS, INC.
By: s/s/ Xxxxxxxx X. Xxxx
--------------------------
Xxxxxxxx X. Xxxx
Executive Vice President/
Director of Investment Banking
Agreed and Accepted:
XXXXXX ELECTRONICS, INC.
By: /s/ Xxxxxxx Xxxxx
---------------------
Xxxxxxx Xxxxx
Chairman
EXHIBIT A [TO THE PLACEMENT AGENCY AGREEMENT]
Indemnification Provisions to Distribution Agreement (the "Agreement") dated
April 12, 2006 between vFinance Investments, Inc. ("VFIN") and Xxxxxx
Electronics, Inc. (the "Company"). Company agrees to (a) reimburse VFIN, its
affiliates and their respective directors, officers, employees, agents and
controlling persons (each, an "Indemnified Party") promptly, upon demand, for
actual and reasonable out-of-pocket expenses (including reasonable fees and
expenses for legal counsel) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened claim,
or any litigation, proceeding or other action in connection with or arising out
of or relating to the engagement of VFIN under the Agreement, or any actions
taken or omitted, services performed or matters contemplated by or in connection
with the Agreement, (collectively, a "Claim"); and (b) to indemnify and hold
harmless each Indemnified Party from and against any and all out-of-pocket
losses, claims, damages and liabilities, joint or several, to which any
Indemnified Party may become subject, including any amount paid in settlement of
any litigation or other action (commenced or threatened) to which Company shall
have consented in writing (such consent not to be unreasonably withheld),
whether or not any Indemnified Party is a party and whether or not liability
resulted; provided, however, that Company shall not be liable in respect of any
loss, claim, damage or liability to the extent that a court or other agency
having competent jurisdiction shall have determined by final judgment (not
subject to further appeal) that such loss, claim, damage or liability shall have
been incurred solely as a direct result of the willful misconduct or gross
negligence of such Indemnified Party.
Company shall have the right to represent any Indemnified Party in any action as
to which indemnification is sought hereunder, provided, however, that in the
event that counsel to an Indemnified Party advises such party that there is a
conflict or potential conflict of interests as between Company and an
Indemnified Party in the reasonable judgment of such counsel, then such
Indemnified Party shall have the right to retain separate legal counsel of its
own choice to conduct the defense and all related matters in connection with any
Claim. Company shall pay the reasonable fees and expenses of such legal counsel,
and such counsel shall to the fullest extent, consistent with its professional
responsibilities, cooperate with Company and any legal counsel designated by
Company, provided, however, that the Company shall not be obligated to pay the
fees of more than one legal counsel for all Indemnified Parties with respect to
any single Claim or group of related Claims.
Company will not, without the prior written consent of each Indemnified Party
settle, compromise or consent to the entry of any judgment in any pending or
threatened Claim in respect of which indemnification may be reasonably sought
hereunder (whether or not any Indemnified Party is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes an
unconditional, irrevocable release of each Indemnified Party against whom such
Claim may be brought from any and all liability arising out of such Claim.
In the event the indemnity provided for hereunder is unavailable or insufficient
to hold any Indemnified Party harmless, then Company shall contribute to amounts
paid or payable by an Indemnified Party in respect of such Indemnified Party's
losses, claims, damages and liabilities as to which the indemnity provided for
hereunder is unavailable or insufficient (i) in such portion as appropriately
reflects the relative benefits received by Company, on the one hand, and the
Indemnified Party, on the other hand, in connection with the matters as to which
losses, claims, damages or liabilities relate, or (ii) if the allocation
provided by
(i) above is not permitted by applicable law, in such proportion as
appropriately reflects not only the relative benefits referred to in clause (i)
but also the relative fault of Company, on the one hand, and the Indemnified
Party, on the other hand, as well as any other equitable considerations. The
amounts paid or payable by a party in respect of losses, claims, damages and
liabilities referred to above shall be deemed to include any reasonable legal or
other out-of-pocket fees and expenses incurred in defending any litigation,
proceeding or other action or claim. Notwithstanding the provisions hereof,
VFIN's share of the liability hereunder shall not be in excess of the amount of
fees actually received by VFIN under the Agreement (excluding any amounts
received as reimbursement of expenses by VFIN).
These Indemnification Provisions shall remain in full force and effect and
survive the expiration of the term of the Agreement, and shall be in addition to
any liability that Company might otherwise have to any Indemnified Party under
the Agreement or otherwise.
Each party hereto consents to personal jurisdiction and service of process and
venue in any court in the State of New York in which any claim for indemnity is
brought by any Indemnified Person, except as provided in Section 11 of the
Agreement.
VFINANCE INVESTMENTS, INC.
By: /s/Xxxxxxxx X. Xxxx
----------------------------------------
Xxxxxxxx X. Xxxx
Executive Vice President/Director of Investment Banking
XXXXXX ELECTRONICS, INC.
By: /s/ Xxxxxxx Xxxxx
---------------------
Xxxxxxx Xxxxx
Chairman
