Exhibit 10.8
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of May 26, 2006
(this "Agreement"), is entered into by and between AMBIENT CORPORATION, a
Delaware corporation with headquarters located at 00 Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 (the "Company"), and each individual or entity named on an
executed counterpart of the signature page hereto (each such signatory is
referred to as a "Buyer") (each agreement with a Buyer being deemed a separate
and independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer (each,
an "Other Buyer") under such agreement and the Transaction Agreements, as
defined below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded, INTER ALIA,
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to lend to the Company, subject to
and upon the terms and conditions of this Agreement and acceptance of this
Agreement by the Company, the Purchase Price (as defined below), the repayment
of which will be represented by 8% Senior Secured Convertible Debentures Series
06-02 of the Company (the "Convertible Debentures"), which Convertible
Debentures will be convertible into shares of Common Stock, $.001 par value per
share, of the Company (the "Common Stock"), upon the terms and subject to the
conditions of such Convertible Debentures, together with the Warrants (as
defined below) exercisable for the purchase of shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE.
(i) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the undersigned Buyer hereby agrees to loan to
the Company the principal amount set forth on the Buyer's signature page of this
Agreement (the "Purchase Price"), (1) out of the aggregate amount being loaned
by all Buyers of $ 10,000,000 (the "Aggregate Purchase Price").
(ii) The obligation to repay the loan from the Buyer shall be
evidenced by the Company's issuance of one or more Convertible Debentures to the
Buyer in the aggregate principal amount equal to the Purchase Price (the
Convertible Debentures issued to the Buyer, the "Debentures"). Each Debenture
(i) shall provide for a Conversion Price (as defined below), which price may be
adjusted from time to as provided in the Debenture, (ii) shall have the terms
and conditions of, and be substantially in the form attached hereto as, ANNEX I,
_____________________________
(1)The minimum Purchase Price per Buyer named on a signature page is $100,000,
unless the Company, in its sole and absolute discretion, waives this minimum
with respect to any specific Buyer.
and (iii) shall be secured pursuant to the terms of the Security Interest
Agreement substantially in the form annexed hereto as ANNEX VIII (the "Security
Interest Agreement").(2)
(iii)On the Closing Date (as defined below), the Purchase
Price shall be paid by the Buyer and the Company will deliver the relevant
Certificates (as defined below) to the Escrow Agent, as provided in Section 1(c)
hereof.
(v) The loan to be made by the Buyer and the issuance of the
Debentures and the Warrants (collectively, the "Purchased Securities") to the
Buyer are sometimes referred to herein and in the other Transaction Agreements
as the purchase and sale of the Debentures and the Warrants.
B. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
"Affiliate" means, with respect to a specific Person referred
to in the relevant provision, another Person who or which controls or is
controlled by or is under common control with such specified Person.
"Buyer Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Buyer
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Buyer's Allocable Share" means the fraction, of which (i) the
numerator is the Buyer's Purchase Price (to the extent actually paid) and (ii)
the denominator is the Aggregate Purchase Price.
"Certificate of Incorporation" means the certificate of
incorporation, Articles of Incorporation or other charter document (howsoever
denominated) of the Company, as amended to date.
"Certificates" means the (x) the original executed Debentures
and (y) the original executed Warrants, each duly executed by the Company and
issued in the name of the Buyer on the Closing Date.
"Closing Date" means the date of the closing of the purchase
and sale of the Purchased Securities.
"Closing Price" means the 4:00 P.M. closing bid price of the
Common Stock on the Principal Trading Market on the relevant Trading Day(s), as
reported by the Reporting Service for the relevant date.
"Company Control Person" means each director, executive
officer, promoter, and such other Persons as may be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"Company Counsel" means Aboudi & Xxxxxxxxxx.
"Company Principal's Agreement" has the meaning ascribed to in
Section 4(h).
"Company's SEC Documents" means the Company's filings on the
SEC's XXXXX system which are listed on ANNEX VI annexed hereto, to the extent
available on XXXXX or otherwise provided to the Buyer as indicated on said Annex
VI.
_____________________________
(2)By signing this Agreement, the Buyer, subject to acceptance by the Agent
named in the Security Interest Agreement, agrees to all of the terms and
conditions of, and becomes a party to, the Security Interest Agreement, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
"Conversion Certificates" means certificates representing the
Conversion Shares or the Warrant Shares, as the case may be.
"Conversion Date" means the date a Holder submits a Notice of
Conversion, as provided in the Debentures.
"Conversion Price" means, (i) with respect to a voluntary
conversion by the Holder of the Debenture or a Mandatory Conversion (as defined
in the Debentures), the Voluntary Conversion Price and (ii) with respect to all
other conversions, the Variable Conversion Price.
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and/or in payment of accrued interest, as
contemplated in the Debentures.
"Converting Holder" means the Holder of Debentures or
Warrants, as the case may be, who or which has submitted a Notice of Conversion
(as contemplated by the Debentures) or a Notice of Exercise (as contemplated by
the Warrants).
"Delivery Date" has the meaning ascribed to it, as may be
relevant, (x) in the Debentures (with respect to Conversion Shares), (y) in the
Warrants (with respect to Warrant Shares), or (z) in the Registration Rights
Agreement (with respect to Payment Shares).
"Disclosure Letter" means a letter and any modifications
thereof, if any, the latest of which is dated at least one Trading Day prior to
the Closing Date, from the Company to the Buyer; provided, however, that the
Disclosure Letter shall be arranged in sections corresponding to the identified
Sections of this Agreement, but the disclosure in any such section of the
Disclosure Letter shall qualify other provisions in this Agreement to the extent
that it would be readily apparent to an informed reader from a reading of such
section of the Disclosure Letter that it is also relevant to other provisions of
this Agreement.
"Document Escrow Agent" means Xxxxxxx & Prager LLP, the escrow
agent identified in the Joint Document Escrow Instructions attached hereto as
ANNEX II (the "Joint Escrow Instructions").
"Effective Date" means the date the Registration Statement
covering the Registrable Securities is declared effective by the SEC.
"Escrow Funds" means the Purchase Price delivered to the Funds
Escrow Agent as contemplated by Sections 1(c) and (d) hereof.
"Exercise Price" means the per share exercise price of the
relevant Warrant.
"Fixed Conversion Price" means $0.15 (as such amount may be
adjusted as provided herein or in the Debentures).
"Funds Escrow Agent" means American Stock Transfer & Trust
Company, the escrow agent identified in the Wire Instructions.
"Holder", with respect to the Debentures, Conversion Shares or
Payment Shares, has the meaning set forth in the Debenture and, with respect to
the Warrant or Warrant Shares, has the meaning set forth in the Warrant.
"Issue Date Conversion Share" means, with respect to the
Closing Date, the number of shares of Common Stock equal to (x) the Purchase
Price paid by the Buyer on the Closing Date, divided by (y) the amount
which would have been the Conversion Price on such Closing Date, were such date
a Conversion Date (without regard to whether or not the Debentures were
convertible on such date in accordance with their terms).
"Last Audited Date" means December 31, 2005.
"Lowest Fixed Conversion Price" means the lowest New
Transaction Price (as defined below; as that amount may subsequently be adjusted
as provided in the Debentures or herein).
"Majority in Interest of the Holders" means one or more
Holders whose respective outstanding principal amounts of the Debentures held by
each of them, as of the relevant date, aggregate more than seventy five (75%)
percent of the aggregate outstanding principal amounts of the outstanding
Debentures held by the Buyer and all Other Buyers on that date.
"Material Adverse Effect" means an event or combination of
events, which individually or in the aggregate, would reasonably be expected to
(x) adversely affect the legality, validity or enforceability of the Purchased
Securities or any of the Transaction Agreements, (y) have or result in a
material adverse effect on the results of operations, assets, or financial
condition of the Company and its subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
material obligations under any of the Transaction Agreements or the transactions
contemplated thereby.
"Maturity Date" has the meaning ascribed to it in the
Convertible Debentures.
"New Common Stock" means shares of Common Stock and/or
securities convertible into, and/or other rights exercisable for, Common Stock,
which are offered or sold in a New Transaction.
"New Investor" means the third party investor, purchaser or
lender (howsoever denominated) in a New Transaction.
"New Transaction" means, unless consented to by a Majority in
Interest of the Holders (which consent is in the sole discretion of the Holders
and may be withheld for any reason or for no reason whatsoever),
(i) the offer or sale of New Common Stock by or on behalf of the
Company to a New Investor and/or
(ii) the grant of a security interest in or pledge of (x) all or
substantially all of the Company's assets by the Company and/or (y)
shares of Common Stock or securities convertible into or exercisable
for Common Stock by any other party in connection with a transaction in
which the Company borrows or is otherwise obligated to pay funds to a
third party,
in a transaction offered or consummated after the date hereof; provided,
however, that it is specifically understood that the term "New Transaction" (1)
unless consented to otherwise by a Majority in Interest of the Holders (which
consent is in the sole discretion of the Holders and may be withheld for any
reason or for no reason whatsoever), includes, but is not limited to, a sale of
Common Stock or of a security convertible into Common Stock or an equity or
credit line transaction, but (2) does not include (a) the sale of the Purchased
Securities to the Buyer and the Other Buyers, (b) the issuance of Common Stock
upon the exercise or conversion of options, warrants or convertible securities
outstanding on the date hereof, or in respect of any other financing agreements
as in effect on the date hereof and identified in the Disclosure Letter
(provided the same is not amended after the date of the Disclosure Letter) or in
the Company's SEC Documents (provided the same is not amended after the date
hereof), (c) the issuance of New Common Stock pursuant to an Employee Stock
Option Plan (an "ESOP") of the Company, (d) the issuance of New Common Stock
pursuant to a non-employee director stock option plan of the Company, (e) the
issuance of New Common Stock pursuant to a consultants' stock option plan of the
Company, (f) the issuance of Common Stock upon the exercise of any options or
warrants referred to in the preceding clauses of this paragraph
(provided the same is not amended after the date hereof to an Exercise Price
below the highest Exercise Price of any Warrants to be issued hereunder), (g)
the issuance of stock options or warrants to employees, officers or directors of
the Company, provided that all such shares are subject to a Company Principal's
Agreement, (h) the issuance of up to an aggregate of 2,500,000 shares of Common
Stock (or securities convertible into such number of shares and then the
subsequent issuance of such shares upon conversion) issued to other service
providers but not at a price or Conversion price of less than $.15 per share, or
(i) the issuance of shares to a Strategic Partner.
"Payment Shares" has the meaning ascribed to it in the
Registration Rights Agreement.
"Person" means any living person or any entity, such as, but
not necessarily limited to, a corporation, partnership or trust.
"Placement Agent" means Pond Equities.
"Prepayment Conversion Price" means (i) the VWAP for the ten
(10) Regular Trading Days ending on the Trading Day immediately before the
Prepayment Date or the relevant Conversion Date, as the case may be, multiplied
by (ii) seventy-five percent (75%).
"Prepayment Date" has the meaning ascribed to it in the
Debentures.
"Principal Trading Market" means the Over the Counter Bulletin
Board or such other market on which the Common Stock is principally traded at
the relevant time, but shall not include the "pink sheets."
"Registrable Securities" has the meaning ascribed to it in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as ANNEX IV as executed by the Buyer and
the Company simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration
statement covering the Registrable Securities.
"Regular Trading Day" means the regular trading hours of a
Trading Day on which the Principal Trading Market shall be open for business (as
of the date of this Agreement, such hours are, for most Trading Days,
approximately 9:30AM to approximately 4PM Eastern Time; provided, however, that
certain Trading Days may have shorter regular trading hours; and provided,
further, that the regular trading hours may be subsequently changed for the
Principal Trading Market).
"Reporting Service" means Bloomberg LP or if that service is
not then reporting the relevant information regarding the Common Stock, a
comparable reporting service of national reputation selected by a Majority in
Interest of the Holders and reasonably acceptable to the Company.
"Rule 144" means (i) Rule 144 promulgated under the 1933 Act
or (ii) any other similar rule or regulation of the SEC that may at any time
permit Holder to sell securities of the Company to the public without
registration under the 1933 Act.
"Securities" means the Purchased Securities and the Shares.
"Shares" means the shares of Common Stock representing any or
all of the Conversion Shares, the Warrant Shares and the Payment Shares.
"State of Incorporation" means Delaware.
"Strategic Partner" means a third party, whether or not affiliated with
the Company as of the date hereof, which party (i) is engaged in a business in
which the Company is engaged or a similar or related business or is a regulated
public utility or an internet service provider, and (ii) subsequently purchases
(or enters into an agreement to purchase) equity securities of the Company (or
securities convertible into equity securities of the Company), if (a) such
purchase is made in connection with or accompanied or followed by one or more of
the following: the licensing by the Company of all or any portion of its
technology to such third party, the licensing by such third party of all or any
portion of its technology to the Company, or any other coordination of all or a
portion of their respective business activities or operations by the Company and
such third party or (b) no registration statement is filed for such equity
securities until after the Final Lock Up Date as defined herein.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transaction Agreements" means this Agreement, the Debentures,
the Joint Escrow Instructions, the Registration Rights Agreement, the Security
Interest Agreement, the Warrants, each Company Principal's Agreement, and the
Disclosure Letter and includes all ancillary documents executed and delivered
pursuant to those agreements.
"Transfer Agent" means, at any time, the transfer agent for
the Common Stock.
"Variable Conversion Price" means the lower of (i) the
Prepayment Conversion Price or (ii) the Lowest Fixed Conversion Price.
"Voluntary Conversion Price" means the lowest of (i) the Fixed
Conversion Price, (ii) the Lowest Fixed Conversion Price, if any, or (iii)
during the pendency of an Event of Default (as defined in the Debentures), the
Prepayment Conversion Price.
"VWAP" means the volume weighted average price of the Common
Stock on the Principal Trading Market for the relevant Regular Trading Day(s),
as reported by the Reporting Service.
"Warrants" means (i) the Class A Warrant and the Class B
Warrants to be issued pursuant to Section 4(f) hereof and (ii) the Added
Warrants (as defined below), if any.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
"Wire Instructions" means the Purchase Price Wire Instructions
as provided in ANNEX X annexed hereto.
C. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Buyer shall pay the Purchase Price by delivering
immediately available good funds in that amount to the Funds Escrow Agent no
later than the date prior to the Closing Date.
(ii) Within three (3) Trading Days after the Company is
notified that the Funds Escrow Agent has on deposit cleared funds from or on
behalf of one or more Buyers an aggregate amount equal to the Aggregate Purchase
Price and the Company shall have accepted the Buyer's subscription hereunder,
but in no event later than the Closing Date, the Company will deliver the
relevant Certificates for the Debentures and the Warrants to the Document Escrow
Agent. Such Certificates shall be held in escrow by the Document Escrow Agent as
provided in the Joint Escrow Instructions.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Document Escrow Agent, agrees to all of
the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
D. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made to the Funds Escrow Agent as provided in the Wire
Instructions (see Annex X).
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company, as of the date hereof and as of the Closing Date, as follows:
A. Without limiting Buyer's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, the Buyer is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
B. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act,
(ii) experienced in making investments of the kind described in this Agreement
and the other Transaction Agreements, (iii) able, by reason of the business and
financial experience of its officers (if an entity) and professional advisors
(who are not affiliated with or compensated in any way by the Company or any of
its Affiliates or selling agents), to protect its own interests in connection
with the transactions described in this Agreement and the other Transaction
Agreements, and to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
C. All subsequent offers and sales of the Securities by the
Buyer shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from such registration.
D. The Buyer understands that the Securities are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
E. The Buyer and its advisors, if any, have been furnished
with or have been given access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Purchased Securities which have been requested by the Buyer,
including those set forth in any annex attached hereto. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has also had the opportunity to obtain and to review the Company's SEC
Documents.
F. The Buyer understands that its investment in the Securities
involves a high degree of risk.
G. If the Buyer is not a United States person (as defined by
Section 7701(a)(30) of the Internal Revenue Code, as currently in effect), such
Buyer hereby represents that it has satisfied itself as to the full observance
of the laws of its jurisdiction in connection with any invitation to subscribe
for the Purchased Securities or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Purchased
Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities. The Buyer's
subscription and
payment for and continued beneficial ownership, if any, of the Securities will
not violate any applicable securities or other laws of the Buyer's jurisdiction.
H. If the Buyer is an individual, then the Buyer resides in
the state or province identified in the address of the Buyer set forth on the
Buyer's signature page to this Agreement. If the Buyer is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Buyer in which its principal place of business is identified in
the address or addresses of the Buyer set forth on the Buyer's signature page to
this Agreement.
I. The Buyer hereby represents that, in connection with the
Buyer's investment or the Buyer's decision to purchase the Securities, the Buyer
has not relied on any statement or representation of any Person, including any
such statement or representation by the Company or the Placement Agent or any of
their respective controlling Persons, officers, directors, partners, agents and
employees or any of their respective attorneys, except as specifically set forth
herein. The Buyer agrees that none of (i) any Other Buyer, (ii) any controlling
Persons, officers, directors, partners, agents, or employees of each respective
Other Buyer or (iii) any of their respective attorneys shall be liable to the
Buyer for any action heretofore or hereafter taken or omitted to be taken by any
of them in connection with the purchase of the Purchased Securities or in
connection with the Securities. Each of the Placement Agent, each Other Buyer
and each of their respective controlling Persons, officers, directors, partners,
agents and employees and each of their respective attorneys is a third party
beneficiary of this provision.
J. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
K. This Agreement and each of the other Transaction
Agreements, and the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Buyer. This Agreement has been duly executed and
delivered by the Buyer and this Agreement is, and each of the other Transaction
Agreements, when executed and delivered by the Buyer (if necessary), will be,
valid and binding obligations of the Buyer enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer as of the date hereof and as of the Closing Date that,
except as otherwise provided in the Disclosure Letter or in the Company's SEC
Documents:
A. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Purchased Securities or the Shares. No other party has a currently exercisable
right of first refusal which would be applicable to any or all of the
transactions contemplated by the Transaction Agreements.
B. STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is quoted on the Principal Trading Market. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for quotation on the Principal Trading
Market and the Company has maintained all requirements on its part for the
continuation of such quotation.
C. AUTHORIZED SHARES.
(i) The authorized capital stock of the Company consists of 500,000,000
shares of Common Stock, of which approximately 167,857,781 shares are
outstanding as of the date hereof and 5,000,000 shares of preferred stock, par
value $.001 per share, of which none are outstanding as of the date hereof.
(ii) There are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future. If any such securities are listed on the Disclosure Letter, the number
or amount of each such outstanding convertible security and the conversion terms
are set forth in said Disclosure Letter.
(iii) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. The Company
has sufficient authorized and unissued shares of Common Stock as may be
necessary to effect the issuance of the Shares on the Closing Date, were the
Debentures fully converted and were the Warrant fully exercised on that date.
(iv) The Shares have been duly authorized by all necessary corporate
action on the part of the Company, and, when issued on conversion of, or in
payment of interest on, the Debentures or upon exercise of the Warrants, in each
case in accordance with their respective terms, will have been duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof to
personal liability by reason of being such Holder.
D. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each
of the other Transaction Agreements, and the transactions contemplated hereby
and thereby, have been duly and validly authorized by the Company. This
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Debentures, the Warrants and each of the other Transaction
Agreements, when executed and delivered by the Company, will be, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Transaction Agreements by the Company, the
issuance of the Securities in accordance with the terms hereof, and the
consummation by the Company of the other transactions contemplated by this
Agreement, the Debentures, the Warrants and the other Transaction Agreements do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, or (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not have or
result in a Material Adverse Effect.
F. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. FILINGS. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Since April 1, 2005, the Company has filed all annual and
quarterly reports required to be filed by the Company with the SEC under Section
13(a) or 15(d) of the 1934 Act.
H. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been no Material Adverse Effect, except as disclosed in the Company's
SEC Documents. Since the Last Audited Date, except as provided in the Company's
SEC Documents, the Company has not (i) incurred or become subject to any
material liabilities (absolute or contingent) except liabilities incurred in the
ordinary course of business consistent with past practices; (ii) discharged or
satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any agreements
to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled any material debts
owed to the Company by any third party or material claims of the Company against
any third party, except in the ordinary course of business consistent with past
practices; (v) waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
I. FULL DISCLOSURE. To the Company's knowledge, there is no
fact known to the Company (other than conditions known to the public generally
or as disclosed in the Company's SEC Documents) that has not been disclosed in
writing to the Buyer that would reasonably be expected to have or result in a
Material Adverse Effect.
J. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company before or by any governmental authority or
non-governmental department, commission, board, bureau, agency or
instrumentality or any other person, wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements. The Company is
not aware of any valid basis for any such claim that (either individually or in
the aggregate with all other such events and circumstances) could reasonably be
expected to have a Material Adverse Effect. There are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse Effect.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as defined in
the respective agreement to which the Company or its subsidiary is a party, and
no event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a Material Adverse
Effect.
L. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR
EVENTS. To the Company's knowledge, none of the following has occurred during
the past five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such
Company Control Person, or any partnership in which he was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer
at or within two years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily enjoining him
from, or otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other Person
regulated by the Commodity Futures Trading Commission ("CFTC")
or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting for
more than 60 days the right of such Company Control Person to engage in
any activity described in paragraph (3) of this item, or to be
associated with Persons engaged in any such activity; or
(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the CFTC or SEC has not been subsequently reversed,
suspended, or vacated.
M. NO UNDISCLOSED LIABILITIES OR EVENTS. To the Company's
knowledge, the Company has no liabilities or obligations other than those
disclosed in the Transaction Agreements or the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since the Last Audited
Date, or which individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstance has occurred or exists with
respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the articles or certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without stockholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the stockholders
of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries.
N. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 2005, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
O. DILUTION. Each of the Company and its executive officers
and directors is aware that the number of shares issuable on conversion of the
Debentures, upon exercise of the Warrants or pursuant to the other terms of the
Transaction Agreements may have a dilutive effect on the ownership interests of
the other stockholders (and Persons having the right to become stockholders) of
the Company. The Company specifically acknowledges that its obligation to issue
the Conversion Shares upon conversion of the Debentures, the Warrant Shares upon
exercise of the Warrants or the Payment Shares as provided in the Registration
Rights Agreement is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other stockholders
of the Company, and the Company will honor such obligations, including honoring
every Notice of Conversion (as contemplated by the Debentures), every Notice of
Exercise (as contemplated by the Warrants), and every demand for Payment Shares
(as contemplated by the Registration Rights Agreement), unless the Company is
subject to an injunction (which injunction was not sought by the Company)
prohibiting the Company from doing so.
P. FEES TO BROKERS, PLACEMENT AGENTS AND OTHERS. The Company
has taken no action which would give rise to any claim by any Person for
brokerage commission, placement agent or finder's fees or similar payments by
Buyer relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the foregoing, the Company acknowledges that it has agreed to
pay the Placement Agent's Compensation (as defined in the Joint Escrow
Instructions) to the Placement Agent in connection with the transactions
contemplated hereby. Except for such fees arising as a result of any agreement
or arrangement entered into by the Buyer without the knowledge of the Company (a
"Buyer's Fee"), Buyer shall have no obligation with respect to such fees or with
respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this paragraph that may be due in connection wit h the
transactions contemplated hereby. The Company shall indemnify and hold harmless
each of Buyer, its employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees (other than a Buyer's Fee).
Q. DISCLOSURE. No event or circumstance has occurred or exists
with respect to the Company or its business, properties, prospects, operations
or financial conditions, which under applicable law, rule or regulation,
requires public disclosure or announcement by the Company.
R. CONFIRMATION. The Company confirms that all representations
and warranties of the Company contained herein shall survive the closing under
this Agreement by the Buyer for a period of three (3) years from the Closing
Date. The Company agrees that, if, to the knowledge of the Company, any events
occur or circumstances exist prior to the release of the Escrow Funds to the
Company which would make any of the Company's representations or warranties set
forth herein materially untrue or materially inaccurate as of such date, the
Company shall immediately notify the Buyer (directly or through the Placement
Agent ) and the Document Escrow Agent in writing prior to such date of such
fact, specifying which representation, warranty or covenant is affected and the
reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS.
(i) The Buyer acknowledges that (1) the Securities have not
been and are not being registered under the provisions of the 1933 Act and,
except as provided in the Registration Rights Agreement or otherwise included in
an effective registration statement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such Securities under circumstances in which the
seller, or the Person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
(ii) In addition to the foregoing, and not in lieu thereof,
the Buyer agrees that, without the express written consent of the Company in
each instance, it will not transfer any of the Purchased Securities to any
Person which is known to the Buyer to be in substantially the same business as
the Company or which is known to be a subsidiary or affiliate of such a Person.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that,
until such time as the relevant Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement, and may be sold in
accordance with an effective Registration Statement or otherwise in accordance
with another effective registration statement, or until such Shares can
otherwise be sold without restriction, whichever is earlier, the certificates
and other instruments representing any of the Securities shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
C. FILINGS. The Company undertakes and agrees to make all
filings required to be made by it in connection with the sale of the Securities
to the Buyer under the 1933 Act, the 1934 Act or the securities laws and
regulations of any of the United States applicable to the Company or by the
rules and regulations of the Principal Trading Market, and, unless such filing
is publicly available on the SEC's XXXXX system (via the SEC's web site at no
additional charge), to provide a copy thereof to the Buyer promptly after such
filing. Reference is made to the Section titled "Publicity, Filings, Releases,
Etc." below.
D. REPORTING STATUS. So long as there remains outstanding
either Convertible Debentures in aggregate principal amount equal to 10% of the
Aggregate Purchase Price or Warrants to purchase the number of shares of Common
Stock equal to 10% of the Issue Date Conversion Shares and for at least twenty
(20) Trading Days thereafter, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take
all reasonable action under its control to ensure that adequate current public
information with respect to the Company, as required in accordance with Rule
144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination. The
Company will take all reasonable action under its control to maintain the
continued listing and quotation and trading of its Common Stock (including,
without limitation, all Registrable Securities) on the Principal Trading Market
or a listing on the NASDAQ Capital or National Markets or AMEX and, to the
extent applicable to it, will comply in all material respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the
Principal Trading Market and/or the National Association of Securities Dealers,
Inc., as the case may be, applicable to it at least through the date which is
sixty (60) days after the later of the date on which (x) all of the Debentures
have been converted or have been paid in full or (y) all of the Warrants have
been exercised or have expired.
E. USE OF PROCEEDS. The Company will use the net proceeds
received hereunder (excluding amounts paid as contemplated by the Joint Escrow
Instructions) as provided in ANNEX IX attached hereto (the "Use of Proceeds").
The Use of Proceeds provides, among other things, that such net proceeds on the
Closing Date shall be used (i) first, for repayment of the promissory notes
identified in the Use of Proceeds (each, a "Specified Note") to the holders
thereof named therein (each, a "Specified Holder"); and (ii) then, for general
corporate purposes; provided however, the Company will not use such to pay fees
payable (x) to another broker or finder (other than the Placement Agent)
relating to the offer and sale of the Purchased Securities or (y) to any other
party relating to any financing transaction effected prior to the Closing Date.
F. WARRANTS.
(i) The Company agrees to issue to the Buyer on the Closing
Date two (2) separate transferable warrants (each, a "Warrant" and,
collectively, the "Warrants"), designated as Class 2006-A ("Class A") and Class
2006-B ("Class B") Warrants, respectively.
(ii) Each Class A Warrant and each Class B Warrant shall be
for the purchase of a number of shares of Common Stock equal to fifty percent
(50%) of the Issue Date Conversion Shares, or a total of 100% of the Issue Date
Conversion Shares for all Warrants combined.
(iii) Each Warrant shall have an exercise price (each, an
"Exercise Price") as follows: (i) Class A - $0.20; and (ii) Class B - $0.25;
each such Exercise Price will be subject to adjustment as provided in the
Warrant.
(iv) Each of the Warrants shall be exercisable commencing on
the Commencement Date specified in the Warrants. Each of the Warrants shall
expire at the close of business on its expiration date, which dates are as
follows: (i) Class A - the date which is the last day of the calendar month in
which the third annual anniversary of the Effective Date occurs; and (ii) Class
B - the date which is the last day of the calendar month in which the fifth
annual anniversary of the Effective Date occurs.
(v) Each Warrant shall have cashless exercise rights as
provided in the Warrant. Except as specified above, each Warrant shall generally
be in the form annexed hereto as Annex V.
(vi) The Warrant Shares shall be subject to the provisions of
the Registration Rights Agreement.
G. CERTAIN AGREEMENTS.
(i) For purposes of this Agreement, the following terms shall
have meanings indicated:
(A) "New Transaction Period" means the period commencing on the Closing
Date and continuing through and including the Final Lock-up Date.
(B) "Final Lock-up Date" means the date which is the earlier of (i) the
date on which the aggregate principal amount of all outstanding
Debentures is twenty-five percent (25%) or less of the Aggregate
Purchase Price, or (ii) the date which is 540 days after the Effective
Date, but not counting for such purposes the days, if any, during which
sale of Registrable Securities was suspended after the Effective Date.
(C) "New Transaction Price" means the Basic New Transaction Price (as
defined below) except that if the New Transaction Exercise Price is
lower than the Basic New Transaction Price, it means the New
Transaction Exercise Price.
(D) "Basic New Transaction Price" means, as may be applicable, on a per
share basis, the lower of (1) the lowest fixed purchase price of any
shares of the New Common Stock contemplated in the New Transaction, or
(2) the lowest conversion price or put or call price which would be
applicable under the terms of the New Transaction; in each such case,
whether such purchase or conversion price or put or call price is
stated or otherwise specified or is determined on the closing date of
the New Transaction by the application of a formula set in the
documents reflecting the New Transaction or could result from
adjustments or revisions contemplated in the relevant agreements for
the New Transaction and whenever such adjustment or revision would be
applicable (and if no minimum purchase price, conversion price or put
or call price, as the case may be, is set, it shall be assumed that
such minimum purchase price or conversion price is $.01); and provided,
further, that, if the securities issued in the New Transaction are
issued at a Face Value Discount (as defined below), the New Transaction
Price shall be adjusted to reflect such discount.(3)
(E) "Exercise Threshold Price" means the then applicable Exercise
Price.
(F) "New Transaction Exercise Price" means the lowest exercise price
per share applicable to the warrants, option or similar instrument
(howsoever denominated; collectively, "New Transaction Warrants")
included in such New Transaction, whether such exercise price is stated
or could result from adjustments or revisions contemplated in the
relevant agreements for the New Transaction and whenever such exercise
price would be applicable (and, if no minimum exercise price is set, it
shall be assumed that such minimum exercise price is $.01).
(G) "Alternative Warrant Percentage" means, with respect to the
relevant New Transaction, (1) the number of shares which are eligible
to be purchased under the New Transaction Warrants, divided by (2) the
aggregate of the shares of New Common Stock issued or issuable in such
transaction (excluding the shares issuable on exercise of the New
Transaction Warrants).
(H) "Current Warrant Percentage" means, as of immediately before the
consummation of the relevant New Transaction, the higher of (1) one
hundred percent (100%) or (2) the highest Alternative Warrant
Percentage of any preceding New Transaction.
(I) "Outstanding Warrant Shares" means, for the Warrants or for any
previously issued Added Warrants, the then outstanding number of
Warrant Shares which would then be issuable upon the exercise in full
of such Warrants (without regard to any limitations which may then
restrict the Holder's full exercise of such Warrant at any time) or
such Added Warrants, if any, as in effect immediately prior to the
relevant New Transaction.
(J) "Original Warrant Shares" means, for the Warrants or for any
previously issued Added Warrants, the original number of Warrant Shares
issuable on exercise of such Warrants on the relevant Closing Date or
as Added Warrants, as the case may be (in each case without regard to
any limitations which may then restrict the Holder's full exercise of
such Warrant at any time).
(K) "Face Value Discount" means consideration less than, as the case
may be, (x) the number of shares being issued multiplied by the stated
purchase price, (y) the stated principal amount of a debenture, note or
similar instrument or (z) the stated value of the shares of convertible
stock.
(ii) The Company covenants and agrees that, if, during the New
Transaction Period, without the prior written consent of a Majority in Interest
of the Holders in each instance (which consent is in the sole discretion of the
Holders), the Company enters into a New Transaction, then
(A) the New Transaction Price shall be deemed to be the "Lowest Fixed
Conversion Price" for purposes of clause (y) of the definition of
"Conversion Price" in the Debentures for all Unconverted Debentures;
provided, however, if there was one or more previous New Transaction
Prices, the Lowest Fixed Conversion Price shall be the lowest New
Transaction Price(4) of all New Transactions; and
_____________________________
(3)By way of illustration, if convertible preferred shares having a stated value
of $1 million and a fixed conversion price of $0.05 were sold for a purchase
price of $800,000, the effective New Transaction Price would be $0.04.
(4)Any New Transaction Price shall be adjusted for subsequent events as
contemplated by the Debentures.
(B) if the New Transaction Exercise Price of any of the New Transaction
Warrants is lower than the Exercise Threshold Price of the Warrants,
then the Exercise Price of the then outstanding Warrants shall be
adjusted to be equal to the New Transaction Exercise Price of such New
Transaction Warrants; and
(C) if the provisions applicable to the convertible preferred stock,
convertible debenture or similar instrument (howsoever denominated), if
any, of the New Transaction are more beneficial to the holder of such
instrument than the corresponding terms applicable to the Debentures or
in or to the Warrants, as the case may be, or if the terms which are
beneficial to the Company in the relevant Transaction Agreements are
not included in the corresponding instrument in the New Transaction,
then, unless waived by the Majority in Interest of the Holders, the
terms of the Transaction Agreements applying to the then outstanding
Debentures or the Warrants or to the other Transaction Agreements, as
the case may be, shall be modified to reflect similar terms (based, if
relevant, on the Closing Date); provided, however, that nothing in this
provision shall be read to mean that the Purchased Securities shall be
changed to any other form of security;
(D) if either (1) the Conversion Price is adjusted as contemplated by
clause (A) above, and/or (2) the Alternative Warrant Percentage is
greater than the Current Warrant Percentage (whether or not the
Conversion Price has been adjusted as a result of the New Transaction),
the Company shall issue to the Holder additional warrants ("Added
Warrants") for the purchase of the number of shares equal to the
excess, if any, of
(x) (I) the higher of (a) the Alternative Warrant
Percentage or (b) the Current Warrant Percentage, multiplied
by (II) (a) the Purchase Price, divided by (b) the Conversion
Price as determined on the Closing Date or on the closing date
of the New Transaction, whichever is lower, multiplied by
(III) a fraction, of which the numerator is the Outstanding
Warrant Shares for all Warrants (including previously issued
Added Warrants) and the denominator is Original Warrant Shares
for all Warrants (including previously issued Added Warrants);
over
(y) the aggregate Outstanding Warrant Shares for all
Warrants (including previously issued Added Warrants);
the terms of such Added Warrants (including, but not limited, to term
of exercisability, exercise price, manner and limitations, if any, on
exercise, registration rights) shall be the same as the shall be the
same as the applicable New Transaction Warrants issued in such New
Transaction.
(iii) The Company covenants and agrees that, any of the
foregoing provisions of this Section 4(g) or any other provision of this
Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, it will not without the prior written consent of a Majority in
Interest of the Holders in each instance (which consent is in the sole
discretion of the Holders and may be withheld for any reason or for no reason
whatsoever),
(A) during the New Transaction Period, enter into any New Transaction
where such transaction provides for a variable conversion price or a
variable exercise price; provided, however, that this Section 4 (g)
(iii) (A) shall not apply to a provision in a debenture or similar
instrument, including without limitation, a preferred equity security
(howsoever denominated; a "New Debenture") representing an obligation
to repay the amount loaned or advanced by a New Investor to the Company
in a New Transaction and represented by the New Debenture (the "New
Debenture Original Principal") which provides that (i) the Company
shall be obligated to repay on a monthly or less frequent basis,
beginning no earlier than three months after the issuance of the New
Debenture, a fixed amount of the New Debenture Original Principal (not
to exceed 4.77% per month of such New Debenture Original Principal),
together with all accrued interest due and payable thereon and (ii) if
such required periodic payment may be paid in
shares of Common Stock, the number of shares to be issued pursuant to
such provision shall be based on (x) the Regular VWAP for the ten (10)
Trading Days prior to the relevant scheduled payment date, multiplied
by (y) a percentage no lower than seventy-five percent (75%).
(B) during the period commencing on the Closing Date and continuing
through the Effective Date, enter into any New Transaction whatsoever,
and
(C) during the period commencing on the Effective Date and continuing
through the earlier of (i) the date which is the sixth month
anniversary of the Effective Date or (ii) the date on which the
aggregate principal amount of all outstanding Debentures is twenty-five
percent (25%) or less of the Aggregate Purchase Price, enter into any
New Transaction where such New Transaction provides for any
registration rights (including, but not limited to demand or piggy-back
registration rights) to any one or more of the New Investors in such
New Transaction.
The Company acknowledges that each of the foregoing provisions is independent of
the others and that a breach of any of the foregoing provisions might result in
adjustments referred to in other provisions of this Section 4(g) and, in
addition (and not in lieu of such adjustments, if any) shall constitute an event
of default under the Debenture and the other Transaction Agreements. The Company
is aware that if such event of default occurs, a Holder of a Debenture will have
certain redemption rights contemplated by the Debenture.
(iv) Nothing in the foregoing provisions reflects either an
obligation on the part of any Buyer to participate in any New Transaction or a
limitation on any Buyer from participating in any New Transaction.
(v) Any of the foregoing provisions of this Section 4(g) or
any other provision of this Agreement or any of the other Transaction Agreements
to the contrary notwithstanding, the Company shall not engage in any offers,
sales or other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Agreements.
(vi) The Company agrees that, prior to the Effective Date, the
Company will not file any registration statement for the sale of shares by the
Company or any other stockholder other than the Registration Statement
contemplated by the Registration Rights Agreement (or amendments to such
Registration Statement) and other than (x) a registration statement on Form S-8
(and any post-effective amendments thereto) and (y) a post-effective
registration statement with respect to any registration statement which was
declared effective prior to the Closing Date.
H. COMPANY PRINCIPAL'S AGREEMENTS.
(i) The Company hereby agrees that, no later than the Closing
Date, the Company will cause each of its principal officers and all of its
directors (each, a "Company Principal"), and certain Persons who are related to
or controlled by such Company Principal, to execute and deliver an agreement
(each, a "Company Principal's Agreement") regarding limitations on the sale or
other disposition of the shares of the Company's Common Stock (or instruments
convertible into or exercisable for such shares) held by such Company Principal
or other Principal (as defined in the Company Principal's Agreement), except
that, notwithstanding its terms, the Company Principal's Agreement will be
deemed not apply to the sale of shares of Common Stock bought by a Principal in
open market transactions. Subject to the foregoing, each Company Principal's
Agreement shall be substantially in the form set forth in ANNEX VII attached
hereto.
(ii) In addition, under certain circumstances as contemplated
by the definition of "New Transaction" in this Agreement, certain future
issuances by the Company to persons identified in clause (g) of such definition
are conditioned on such shares being subject to a Company Principal's Agreement
being executed by the relevant party (who, whether or not included in the
definition of Company Principal in the preceding subparagraph (i), shall, for
purposes of this Section 4(h), be deemed to be a "Company Principal" identified
in such definition). The Company covenants that it will obtain such executed
Company Principal's Agreement from the relevant party
no later than the issuance of the relevant security to such party and that it
will promptly provide a copy thereof to the Document Escrow Agent on behalf of
the Buyer and the Other Buyers.
I. AVAILABLE SHARES.
(i) The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, a number of shares (the
"Reserved Amount") at least equal to one hundred and fifty percent (150%) of the
sum of (x) the number of shares of Common Stock issuable as may be required, at
any time, to satisfy the conversion rights of the Holders of principal on all
outstanding Convertible Debentures plus interest thereon through the Maturity
Date (assuming for such purposes that interest is paid in shares at the
Conversion Price), plus one hundred percent (100%) of the sum of (y) the number
of shares issuable upon exercise of all outstanding Warrants held by all Holders
(in each case, whether any of such outstanding Convertible Debentures or
Warrants were originally issued to the Holder, the Buyer or to any other party
and without regard to any restrictions which might limit any Holder's right to
convert any of the Debentures or to exercise any of the Warrants held by any
Holder).
(ii) The Reserved Amount shall be determined on the Closing
Date and after each New Transaction Closing Date, and thereafter on the first
Trading Day after the end of each subsequent calendar quarter, and the number of
shares to be reserved shall be based on (q) all outstanding Debentures and the
Conversion Price which would have been applicable as of such date and (r) all
unexercised Warrants as of such date. The Reserved Amount determined on such
date shall remain the Reserved Amount until the next New Transaction Closing
Date or quarterly determination, as the case may be. The Company shall give
written instructions to the Transfer Agent to reserve for issuance to the Buyer
the number of shares equal to the Reserved Amount. The Company will, at the
request of the Buyer (which request shall not be made more frequently than once
a year), provide written confirmation, certified by an executive officer of the
Company, of the number of shares then reserved for the Buyer and that the
instructions referred to in the preceding sentence have been given to the
Transfer Agent.
J. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties
agrees that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases, holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless in the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included. In furtherance of the foregoing, the Company will
provide to the Investor's Counsel (as defined in the Registration Rights
Agreement) drafts of the applicable text the first or initial filing of a
Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
(or equivalent SB forms), as the case may be, intended to be made with the SEC
which refers to the Transaction Agreements or the transactions contemplated
thereby as soon as practicable (but at least two (2) Trading Day before such
filing will be made) and will not include in such filing (or any other filing
filed before then) any statement or statements or other material to which the
other party reasonably objects, unless in the reasonable opinion of counsel to
the party proposing such statement, such statement is legally required to be
included. Notwithstanding the foregoing, each of the parties hereby consents to
the inclusion of the text of the Transaction Agreements in filings made with the
SEC (but any descriptive text accompanying or part of such filing shall be
subject to the other provisions of this paragraph). Notwithstanding, but subject
to, the foregoing provisions of this Section 4(j), the Company will, after the
Closing Date, promptly issue a press release and file a Current Report on Form
8-K or, if appropriate, include a disclosure in a quarterly or annual report on
the appropriate form, referring to the transactions contemplated by the
Transaction Agreements.
K. INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND RIGHTS. The
obligations of each Buyer under the Transaction Agreements are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any Other Buyer under any
one or more of the Transaction Agreements. The decision of each Buyer or Other
Buyer to purchase Purchased Securities pursuant to the Transaction Agreements
has been made by such Buyer independently of any Other Buyer and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its subsidiaries, if any, which may been made or given by any Other Buyer or any
of their respective officers, directors, principals, employees, agents, counsel
or representatives (collectively, including the Buyer, the "Buyer
Representatives"). No Buyer Representative shall have any liability to any Other
Buyer or the Company relating to or arising from any such information,
materials, statements or opinions, if any. Each Buyer acknowledges that no Other
Buyer has acted as agent for such Buyer in connection with making its investment
hereunder and that no Buyer will be acting as agent of such Other Buyer in
connection with monitoring its investment in the Purchased Securities or
enforcing its rights under the Transaction Agreements. Each Buyer 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 Agreements, and it shall not be necessary for any Other Buyer to be
joined as an additional party in any proceeding for such purpose. The Company
acknowledges that, for reasons of administrative convenience, (x) the
Transaction Agreements have been prepared by counsel for one of the Buyers and
such counsel does not represent all of the Buyers with respect to the
transactions contemplated hereby, and each other Buyer has retained its own
counsel (or had the opportunity to do so) with respect to such transactions, and
(y) the Company has elected to provide each of the Buyers with the same
Transaction Agreements for the purpose of closing a transaction with multiple
Buyers and not because it was required or requested to do so by any Buyer. In
furtherance of the foregoing, and not in limitation thereof, the Company
acknowledges that nothing contained in this Agreement or in any Transaction
Agreement, and no action taken by any Buyer pursuant thereto, shall be deemed to
constitute any two or more Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Agreements.
L. EQUAL TREATMENT OF BUYERS. 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 Agreements unless the same consideration
is also offered to all of the parties to the Transaction Agreements.
M. INDEPENDENT INVESTMENT DECISION. No Buyer has agreed to act
with any Other Buyer for the purpose of acquiring, holding, voting or disposing
of the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Buyer is acting independently with respect to its
investment in the Securities. The decision of each Buyer to purchase Purchased
Securities pursuant to this Agreement has been made by such Buyer independently
of any other purchase and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or its subsidiaries wh ich may have made
or given by any Other Buyer or by any agent or employee of any Other Buyer, and
no Buyer or any of its agents or employees shall have any liability to any Other
Buyer (or any other person) relating to or arising from any such information,
materials, statements or opinions.
N. NASD RULE 2710. The Company is aware that the Corporate
Financing Rule 2710 ("NASD Rule 2710") of the National Association of Securities
Dealers ("NASD") is or may become applicable to the transactions contemplated by
the Transaction Agreements or to the sale by a Holder of any of the Securities.
If NASD Rule 2710 is so applicable, the Company shall, to the extent required by
such rule, timely make any filings and cooperate with any broker or selling
stockholder in respect of any consents, authorizations or approvals that may be
necessary for the NASD to timely and expeditiously permit the stockholder to
sell the securities.
O. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary, if any, to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
such subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
5. TRANSFER AGENT INSTRUCTIONS.
A. The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give the Transfer Agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Debentures or
exercise of the Warrants or in connection with the issuance of Payment Shares,
as may be applicable from time to time, in such amounts as specified from time
to time by the Company to the Transfer Agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Holder in connection therewith. Except
as so provided, the Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement and
the other Transaction Agreements. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act or upon request from a Holder while the Registration Statement is
effective, the Company shall (except as provided in clause (2) of Section 4(a)
of this Agreement) permit the transfer of the Securities and, in the case of the
Conversion Shares, the Warrant Shares or the Payment Shares, as may be
applicable, promptly instruct the Transfer Agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
B. (i) The Company understands that a delay in the delivery of
Conversion Certificates, whether on conversion of the Debenture and/or in
payment of accrued interest or on exercise of the Warrants, beyond the relevant
Delivery Date (as defined in the Debenture or Warrant, as the case may be) could
result in economic loss to the Holder. As compensation to the Holder for such
loss, in addition to any other remedies at law, the Company agrees to pay late
payments to the Holder for late issuance of the Conversion Certificates in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of Trading Days beyond two (2) Trading Days after the
Delivery Date):(5)
_____________________________
(5) Example: Notice of Conversion or Notice of Exercise is delivered on Monday,
October 2, 2006. The Delivery Date would be Thursday, October 5 (the third
Trading Day after such delivery). If the certificate is delivered by Monday,
October 9 (2 Trading Days after the Delivery Date), no payment under this
provision is due. If the certificates are delivered on October 10, that is 1
"Trading Day Late" in the table below; if delivered on October 17, that is 6
"Trading Days Late" in the table.
Late Payment For Each $10,000
of Principal or Interest Being Converted or
NO. BUSINESS DAYS LATE OF EXERCISE PRICE OF WARRANT BEING EXERCISED
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for
each Business Day
Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver the
Conversion Certificates to the Holder within a reasonable time. Furthermore, in
addition to any other remedies which may be available to a Holder, in the event
that the Company fails for any reason to effect delivery of such Conversion
Certificates within two (2) Trading Days after the Delivery Date, the Converting
Holder will be entitled to revoke the relevant Notice of Conversion or Notice of
Exercise by delivering a notice to such effect to the Company prior to the
Converting Holder's receipt of the relevant Conversion Certificates, whereupon
the Company and the Converting Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion or Notice
of Exercise, as the case may be; PROVIDED, HOWEVER, that any payments
contemplated by this Section 5(b) of this Agreement which have accrued through
the date of such revocation notice shall remain due and owing to the Converting
Holder notwithstanding such revocation.
(ii) If, by the tenth Trading Day after the relevant
Delivery Date, the Company fails for any reason to deliver the Conversion
Certificates, but at any time after the Delivery Date, the Converting Holder
purchases, in an arm's-length open market transaction or otherwise, shares of
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Converting Holder (the "Sold Shares"), which
delivery such Converting Holder anticipated to make using the shares to be
issued upon such conversion (a "Buy-In"), the Converting Holder shall have the
right to require the Company to pay to the Converting Holder, in addition to and
not in lieu of the amounts contemplated in other provisions of the Transaction
Agreements, including, but not limited to, the provisions of the immediately
preceding Section 5(b)(i)), the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the number of Sold Shares
multiplied by the excess, if any, of (x) the Holder's total purchase price per
share (including brokerage commissions, if any) for the Covering Shares over (y)
the net proceeds per share (after brokerage commissions, if any) received by the
Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Holder in immediately available funds immediately upon
demand by the Converting Holder. By way of illustration and not in limitation of
the foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the Holder
will be $1,000.
C. The provisions of this paragraph apply on or after the
Effective Date. After such Effective Date, the Company will issue Shares without
legend and without transfer restrictions on the books of the Transfer Agent,
and, at the request of the Holder, will use it best efforts to have previously
issued certificates representing the Shares re-issued without legend and without
transfer restrictions on the books of the Transfer
Agent. In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion of the Debenture or exercise of a Warrant or at the
request of the Holder with respect to any Shares previously issued, provided the
Transfer Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Holder and the
Holder's compliance with the provisions contained in this paragraph, so long as
the certificates therefor do not bear a legend and the Holder thereof is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall use its best efforts to cause the Transfer Agent to electronically
transmit to the Holder the Common Stock issuable upon conversion of the
Debenture or exercise of the Warrant or in replacement of any Shares previously
issued by crediting the account of Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission system. The Company specifically
acknowledges that, as of the date hereof and as of the Closing Date, the
Transfer Agent is participating in the DTC program and the Company is not aware
of any plans of the Transfer Agent to terminate such participation. While any
Holder holds Registrable Securities, the Company will not appoint any transfer
agent which does not participate in the DTC program.
D. The Company shall assume any fees or charges of the
Transfer Agent or Company counsel regarding (i) the removal of a legend or stop
transfer instructions with respect to Registrable Securities, and (ii) the
issuance of certificates or DTC registration to or in the name of the Holder or
the Holder's designee or to a transferee as contemplated by an effective
Registration Statement. Notwithstanding the foregoing, it shall be the Holder's
responsibility to obtain all needed formal requirements (specifically: medallion
guarantee and prospectus delivery compliance) in connection with any electronic
issuance of shares of Common Stock.
E. The Holder of a Debenture or a Warrant shall be entitled to
exercise its conversion or exercise privilege with respect to the Debenture or
the Warrant, as the case may be, notwithstanding the commencement of any case
under 11 U.S.C. ss.101 ET SEQ. (the "Bankruptcy Code"). In the event the Company
is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. ss.362 in
respect of such holder's exercise privilege. The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of the conversion of the Debenture or the exercise of the
Warrant. The Company agrees, without cost or expense to such Holder, to take or
to consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
F. The Company will authorize the Transfer Agent to give
information relating to the Company directly to the Holder or the Holder's
representatives upon the request of the Buyer or any such representative, to the
extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Holder in connection with a Notice of
Conversion or a Notice of Exercise, or (ii) the aggregate number of outstanding
shares of Common Stock of all stockholders (as a group and not individually) as
of a current or other specified date. At the request of the Holder, the Company
will provide the Holder with a copy of the authorization so given to the
Transfer Agent.
6. CLOSING DATE.
A. The Closing Date shall occur on the date which is the first
Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
B. The closing of the purchase and issuance of Debentures and
Warrants shall occur on the Closing Date at the offices of the Escrow Agent.
C. Notwithstanding anything to the contrary contained herein,
on the Closing Date upon satisfaction of the conditions set forth in Sections 7
and 8 hereof and as provided in the Joint Escrow Instructions, the Document
Escrow Agent will be authorized to (i) authorize the Funds Escrow Agent to
release the relevant Escrow Funds to the Company and to others, as provided in
the Joint Escrow Instructions, and (ii) as provided herein, release to the Buyer
the relevant Certificates issued to the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Purchased Securities to the Buyer pursuant to this Agreement on the Closing
Date is conditioned upon:
A. The execution and delivery of this Agreement by the Buyer
on or before such Closing Date;
B. Delivery by the Buyer to the Funds Escrow Agent by the
Closing Date of good funds as payment in full of an amount equal to the Purchase
Price in accordance with this Agreement;
C. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Purchased Securities on the Closing Date is conditioned upon:
A. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before such Closing Date;
B. The delivery by the Company to the Document Escrow Agent of
the Certificates in accordance with this Agreement;
C. The delivery by the Company to the Document Escrow Agent on
or before the Closing Date of the executed Company Principal's Agreements from
each Company Principal and the related Principals (as defined in each Company
Principal's Agreement) of such Company Principal;
D. On such Closing Date, each of the Transaction Agreements
executed by the Company on or before such date shall be in full force and effect
and the Company shall not be in default thereunder;
E. The accuracy in all material respects on such Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;
F. The delivery to the Document Escrow Agent of an opinion of
counsel for the Company, dated such Closing Date, addressed to the Buyer and the
Other Buyers and to the Placement Agent, in form, scope and substance reasonably
satisfactory to the Buyer and the Placement Agent, substantially to the effect
set forth in ANNEX III attached hereto;
G. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and
H. From and after the date hereof to and including such
Closing Date, each of the following conditions will remain in effect: (i) the
trading of the Common Stock shall not have been suspended by the SEC or
on the Principal Trading Market; (ii) trading in securities generally on the
Principal Trading Market shall not have been suspended or limited; (iii), no
minimum prices shall been established for securities traded on the Principal
Trading Market; and (iv) there shall not have been any material adverse change
in any financial market.
9. INDEMNIFICATION AND REIMBURSEMENT.
A. (i) The Company agrees to indemnify and hold harmless the
Buyer and its officers, directors, employees, and agents, and each Buyer Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, "Damages"), joint or several, and any action in respect
thereof to which the Buyer, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Buyer Control Person becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, except to the extent such Damages result primarily from Buyer's
failure to perform any covenant or agreement contained in this Agreement or the
Buyer's or its officer's, director's, employee's, agent's or Buyer Control
Person's illegal or willful misconduct, gross negligence, recklessness or bad
faith (in each case, as determined by a non-appealable judgment to such effect)
in performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Buyer,
other than by reason of its gross negligence or willful misconduct or by reason
of its trading of the Common Stock in a manner that is illegal under the federal
securities laws (in each case, as determined by a non-appealable judgment to
such effect), (x) becomes involved in any capacity in any action, proceeding or
investigation brought by any stockholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements, or if the Buyer is impleaded in
any such action, proceeding or investigation by any Person, or (y) becomes
involved in any capacity in any action, proceeding or investigation brought by
the SEC, any self-regulatory organization or other body having jurisdiction,
against or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements, or (z) is impleaded in any such action, proceeding or
investigation by any Person, then in any such case, the Company shall indemnify,
defend and hold harmless the Buyer from and against and in respect of all
losses, claims, liabilities, damages or expenses resulting from, imposed upon or
incurred by the Buyer, directly or indirectly, and reimburse such Buyer for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred.
The indemnification and 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
Buyer who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Buyer Control Persons (if any), as
the case may be, of the Buyer 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 Buyer, any such Affiliate and any such
Person.
B. All claims for indemnification by any Indemnified Party (as
defined below) under this Section shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of
which any Person claiming indemnification under any provision of this Section
(an "Indemnified Party") might seek indemnity under paragraph (a) of this
Section is asserted against or sought to be collected from such Indemnified
Party by a Person other than a party hereto or an Affiliate thereof (a "Third
Party Claim"), the Indemnified Party shall deliver a written notification,
enclosing a copy of all papers served, if any, and specifying the nature of and
basis for such Third Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of this Section
against any Person (the "Indemnifying Party"), together with the amount or, if
not then reasonably ascertainable, the estimated amount, determined in good
faith, of such Third Party Claim (a "Claim Notice") with reasonable promptness
to the Indemnifying Party. If the Indemnified Party fails to provide the Claim
Notice with reasonable promptness after the Indemnified Party receives notice of
such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under this
Section and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim. The
following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this paragraph (b) of this Section, then the Indemnifying Party shall
have the right to defend, with counsel reasonably satisfactory to the
Indemnified Party, at the sole cost and expense of the Indemnifying
Party, such Third Party Claim by all appropriate proceedings, which
proceedings shall be vigorously and diligently prosecuted by the
Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any
relief other than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified Party shall
not be indemnified in full pursuant to paragraph (a) of this Section).
The Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof; provided,
however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this
subparagraph (x), file any motion, answer or other pleadings or take
any other action that the Indemnified Party reasonably believes to be
necessary or appropriate protect its interests; and provided further,
that if requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any
Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this subparagraph (x), and except as provided in the
preceding sentence, the Indemnified Party shall bear its own costs and
expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under paragraph (a) of this
Section with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to paragraph (b) of this Section, or if
the Indemnifying Party gives such notice but fails to prosecute
vigorously and diligently or settle the Third Party Claim, each in a
reasonable manner, or if the Indemnifying Party fails to give any
notice whatsoever within the Dispute Period, then the Indemnified Party
shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by the Indemnified
Party in a reasonable manner and in good faith or will be settled at
the discretion of the Indemnified Party (with the
consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of
such defense and proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the Indemnified Party,
the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in
subparagraph(z) below, the Indemnifying Party will not be required to
bear the costs and expenses of the Indemnified Party's defense pursuant
to this subparagraph (y) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party
shall reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control,
any defense or settlement controlled by the Indemnified Party pursuant
to this subparagraph (y), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under paragraph
(a) of this Section or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability or
the amount of its liability to the Indemnified Party with respect to
such Third Party Claim, the amount of Damages specified in the Claim
Notice shall be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute; provided, however,
that if the dispute is not resolved within thirty (30) days after the
Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
C. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to.
10. JURY TRIAL WAIVER. The Company and the Buyer hereby waive
a trial by jury in any action, proceeding or counterclaim brought by either of
the Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. SPECIFIC PERFORMANCE. The Company and the Buyer
acknowledge and agree that irreparable damage would occur in the event that any
provision of this Agreement or any of the other Transaction Agreements were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties (including any Holder) shall be entitled
to an injunction or injunctions, without (except as specified below) the
necessity to post a bond, to prevent or cure breaches of the provisions of this
Agreement or such other Transaction Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity; provided, however
that the Company, upon receipt of a Notice of Conversion or a Notice of
Exercise, may not fail or refuse to deliver the stock certificates and the
related legal opinions, if any, based on any claim that the Holder has violated
any provision hereof or for any other reason, unless the Company has first
posted a bond for one hundred fifty percent (150%) of the principal amount and
then obtained a court order specifically directing it not to deliver said stock
certificates to the Holder. This provision is deemed incorporated by reference
into each of the Transaction Agreements as if set forth therein in full.
12. GOVERNING LAW: MISCELLANEOUS.
A. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
County of New York or the state courts of the State of New York sitting in the
County of New York in connection with any dispute arising under this Agreement
or any of the other Transaction Agreements and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS, to the bringing of any such proceeding in such jurisdictions or
to any
claim that such venue of the suit, action or proceeding is improper. To
the extent determined by such court, the Company shall reimburse the Buyer for
any reasonable legal fees and disbursements incurred by the Buyer in enforcement
of or protection of any of its rights under any of the Transaction Agreements.
Nothing in this Section shall affect or limit any right to serve process in any
other manner permitted by law.
B. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
C. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
D. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
E. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
F. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
G. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
H. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
I. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
J. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
K. All dollar amounts referred to or contemplated by this
Agreement or any other Transaction Agreement shall be deemed to refer to US
Dollars, unless otherwise explicitly stated to the contrary.
13. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal
delivery as against written receipt therefor or by confirmed
facsimile transmission,
(b) the fifth Trading Day after deposit, postage
prepaid, in the United States Postal Service by registered or
certified mail, or
(c) the third Trading Day after mailing by domestic
or international express courier, with delivery costs and fees
prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: At the address set forth at the head of this Agreement.
Attn: President
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Aboudi & Xxxxxxxxxx
Attn: Xxxxx Xxxxxx, Esq.
Rechov Gavish 3, POB 2432
Kfar Xxxx Xxxxxxxxxx Xxxx 00000 Xxxxxx
Telephone No.: (000-000-0) 000-0000
Telecopier No.: (000-000-0) 000-0000
BUYER: At the address set forth on the signature page of this Agreement.
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
DOCUMENT
ESCROW AGENT: Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Buyer's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Certificates
and the payment of the Purchase Price, for a period of three (3) years after the
Closing Date and shall inure to the benefit of the Buyer and the Company and
their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, with respect to the Purchase Price
specified below, each the undersigned represents that the foregoing statements
made by it above are true and correct and that it has caused this Agreement to
be duly executed on its behalf (if an entity, by one of its officers thereunto
duly authorized) as of the date first above written.
PURCHASE PRICE: $________________________
BUYER:
-------------------------------- ------------------------------------
Address Printed Name of Buyer
--------------------------------
By: _______________________________
Telecopier No. _________________ (Signature of Authorized Person)
-----------------------------------
______________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
IF THE ABOVE NOTICE ADDRESS IS NOT THE RESIDENCE (FOR INDIVIDUAL BUYER) OR
PRINCIPAL PLACE OF BUSINESS (FOR BUYER WHICH IS NOT AN INDIVIDUAL), such
Residence or Principal Place of Business is:
-----------------------------
-----------------------------
-----------------------------
COMPANY:
AMBIENT CORPORATION
By: __________________________
Title: __________________________
