EXHIBIT 10.1
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT, dated as of April 5, 2005, is
entered into by and between AMEDIA NETWORKS, INC., a Delaware corporation with
headquarters located at 000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxxxx, Xxx Xxxxxx 00000
(the "Company"), and DOUBLE U MASTER FUND, LP, a BVI limited partnership, with a
principal place of business as provided on the signature page hereto (the
"Lender").
W I T N E S S E T H:
WHEREAS, the Company and the Lender are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration for offers and sales to accredited investors afforded,
INTER ALIA, by Rule 506 under Regulation D ("Regulation D") as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the
1933 Act; and
WHEREAS, each Lender wishes to lend funds in the amount of the
Loan Amount (as defined below) to the Company, subject to and upon the terms and
conditions of this Agreement and acceptance of this Agreement by the Company,
the repayment of which will be represented by a 7% Convertible Secured
Promissory Note of the Company (the "Note"), on the terms and conditions
referred to herein; and
WHEREAS, in connection with the loan to be made by the Lender,
the Company has agreed to issue the Note and the Warrant (as defined below) to
the Lender;
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:
AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE.
(i) Subject to the terms and conditions of this
Agreement and the other Transaction Agreements (as defined below), the Lender
hereby agrees to loan to the Company the principal amount of $1,500,000 (the
"Loan Amount").
(ii) The obligation to repay the loan from the Lender
shall be evidenced by the Company's issuance of the Note, which shall be shall
be in the form of ANNEX I annexed hereto. The Note shall be convertible into
shares of the Company's Common Stock, par value $.001 per share ("Common Stock")
at a conversion price (the "Conversion Price"), which shall initially be the
Fixed Conversion Price (as defined below), which price may be adjusted from time
to as provided in the Note or in the other Transaction Agreements. Repayment of
the Note shall be secured under the terms of a Security Interest Agreement
between the Company, as debtor, and the Lender, as secured party (the "Security
Interest Agreement"), substantially in the form annexed hereto as ANNEX V.
(iii) In consideration of the loan to be made by the
Lender, the Company will issue to such Lender the Warrant to purchase the number
of shares of the Company's Common Stock as provided in Section 4 hereof.
(iv) The loan to be made by the Lender and the
issuance of the Note and the Warrant to the Lender and the other transactions
contemplated hereby are sometimes referred to herein and in the other
Transaction Agreements as the purchase and sale of the Securities (as defined
below), and are referred to collectively as the "Transactions."
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.
"Certificates" means the Note and the Warrant, each duly
executed by the Company and issued on the Closing Date in the name of the
Lender.
"Closing Date" means the date of the closing of the
Transactions, as provided herein.
"Company Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Company
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Note (including, if relevant, accrued interest on the
Note, if paid in shares of Common Stock).
"Disclosure Letter" means a letter and any modifications
thereof, the latest of which is dated at least one Trading Day prior to the
Closing Date, from the Company to the Lender; 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.
"Escrow Agent" means Xxxxxxx & Xxxxxx LLP, the escrow agent
identified in the Joint Escrow Instructions attached hereto as ANNEX II (the
"Joint Escrow Instructions").
"Escrow Funds" means the Loan Amount delivered to the Escrow
Agent as contemplated by Sections 1(c) and (d) hereof.
"Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
"Fixed Conversion Price" means $1.25 (as that amount may be
adjusted as provided in the Note or herein).
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Last Audited Date" means December 31, 2004.
"Lender Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Lender
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
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"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.
"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 the offer or sale of New Common Stock by
or on behalf of the Company to a New Investor in a transaction offered or
consummated after the date hereof; provided, however, that it is specifically
understood that the term "New Transaction" (1) 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 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 the Company SEC Documents (provided the same is not amended after the
date hereof), (b) the issuance of Common Stock pursuant to an Employee Stock
Option Plan (an "ESOP") of the Company, such ESOP having been properly approved
by the shareholders of the Company, (c) the issuance of Common Stock pursuant to
a non-employee director or consultants' stock option plan of the Company, (d)
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), or (e) to a Strategic Partner.
"Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
"Principal Trading Market" means the Over the Counter Bulletin
Board or such other market on which the Common Stock is principally traded at
the relevant time, but shall not included the "pink sheets."
"Purchased Securities" means the Note and the Warrant.
"Registrable Securities" means all of the following: (i) the
Conversion Shares and (ii) the Warrant Shares, unless such shares can then be
sold by the Holder without volume or other restrictions or limit.
"Registration Rights Provisions" means the piggy-back
registration rights contemplated by the terms of this Agreement, including, but
not necessarily limited to, Section 4(h) hereof, and of the other Transaction
Agreements.
"Registration Statement" means an effective registration
statement covering the Registrable Securities.
"Securities" means the Note, the Warrant and the Shares.
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"Shares" means the shares of Common Stock representing any or
all of the Conversion Shares and the Warrant Shares.
"State of Incorporation" means Delaware.
"Strategic Partner" means a third party, whether or not
currently affiliated with the Company, hereof, which party (i) is engaged in a
business which is the business in which the Company is engaged or a similar or
related business, and (ii) either (a) subsequently purchases equity securities
of the Company (or securities convertible into equity securities of the
Company), or (b) enters into an agreement for 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.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transfer Agent" means, at any time, the transfer agent for the
Company's Common Stock.
"Transaction Agreements" means this Bridge Loan Agreement, the
Note, the Security Interest Agreement, the Joint Escrow Instructions, and the
Warrant, and includes all ancillary documents referred to in those agreements.
"Warrant" means the warrant issued to the Lender as contemplated
by Section 4 of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrant.
C. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Lender shall pay the Loan Amount by
delivering immediately available good funds in United States Dollars to the
Escrow Agent no later than the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event
promptly following payment by the Lender to the Escrow Agent of the Loan Amount,
the Company shall deliver the Certificates, each duly executed on behalf of the
Company and issued in the name of the Lender, to the Escrow Agent.
(iii) By signing this Agreement, each of the Lender
and the Company, subject to acceptance by the Escrow Agent, agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow Instructions,
all of the provisions of which are incorporated herein by this reference as if
set forth in full.
D. METHOD OF PAYMENT. Payment into escrow of the Loan
Amount shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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ABA# 000000000
For credit to the account of Xxxxxxx & Prager LLP
Account No.: [To be provided to the Lender by Xxxxxxx & Xxxxxx LLP]
Re: Amedia 05 Bridge Transaction
For: [Name of Lender]
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Lender represents and warrants to, and covenants and agrees
with, the Company as follows:
A. Without limiting Lender's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, the Lender is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
B. The Lender is (i) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the 1933 Act
by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and to evaluate the merits and risks of an investment in
the Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
C. All subsequent offers and sales of the Securities by the
Lender shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from registration.
D. The Lender understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
E. The Lender and its advisors, if any, have been furnished
with or have been given access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Lender, including those
set forth on in any annex attached hereto. The Lender and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Lender has also
had the opportunity to obtain and to review the Company's filings on XXXXX
listed on ANNEX VI hereto (the documents listed on such Annex VI, to the extent
available on XXXXX or otherwise provided to the Lender as indicated on said
Annex VI, collectively, the "Company's SEC Documents").
F. The Lender understands that its investment in the
Securities involves a high degree of risk.
G. The Lender hereby represents that, in connection with
its purchase of the Securities, it has not relied on any statement or
representation by the Company or any of its officers, directors and employees or
any of its attorneys or agents, except as specifically set forth herein.
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H. The Lender understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
I. This Agreement and the other Transaction Agreements to
which the Lender is a party, and the transactions contemplated thereby, have
been duly and validly authorized, executed and delivered on behalf of the Lender
and are valid and binding agreements of the Lender enforceable in accordance
with their respective terms, subject as to enforceability to general principles
of equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Lender as of the 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 shareholder of the Company, as such, to acquire the
Note, the Warrant or the Shares. No party has a currently exercisable right of
first refusal which would be applicable to any or all of the transactions
contemplated by the Transaction Agreements.
B. STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is quoted on the Principal Trading Market. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such 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 (i) 50,000,000 shares of Common Stock, $.001 par value per share, of
which approximately 20,450,320 are outstanding as of the date hereof, and (ii)
5,000,000 shares of Preferred Stock, $.001 par value, of which 52,500 shares of
the Series A 7% Convertible Preferred Stock, par value $.001 per share and
having a Stated Value of $100 per share, are authorized and approximately 22,500
shares are outstanding as of March 30, 2005.
(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 would be necessary to effect the issuance of the Shares on the
Closing Date, were the Note fully converted and the Warrant fully exercised on
that date.
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(iv) As of the Closing Date, the Shares shall 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
Note or upon exercise of the Warrant. each in accordance with its 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
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 Note, the Warrant and each of the other Transaction Agreements, when
executed and delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Transaction Agreements by the Company, the
issuance of the Securities, and the consummation by the Company of the other
transactions contemplated by this Agreement, the Note, the Warrant 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 shareholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Lender 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 March 1, 2004, the Company has timely filed all
requisite forms, reports and exhibits thereto required to be filed by the
Company with the SEC.
H. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been no material adverse change and no Material Adverse Effect, except
as disclosed in the Company's SEC Documents. Since the Last Audited Date, except
as provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts owed to the Company by any third party or claims of the
Company against any third party, except in the ordinary course of business
consistent with past practices; (v) waived any rights of material value,
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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 best of the Company's knowledge,
there is no fact known to the Company (other than general economic conditions
known to the public generally or as disclosed in the Company's SEC Documents)
that has not been disclosed in writing to the Lender that would reasonably be
expected to have or result in a Material Adverse Effect.
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 nongovernmental
department, commission, board, bureau, agency or instrumentality or any other
person, wherein an unfavorable decision, ruling or finding would have a Material
Adverse Effect or which would adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its obligations under,
any of the Transaction Agreements. The Company is not aware of any valid basis
for any such claim that (either individually or in the aggregate with all other
such events and circumstances) could reasonably be expected to have a Material
Adverse Effect. There are no outstanding or unsatisfied judgments, orders,
decrees, writs, injunctions or stipulations to which the Company is a party or
by which it or any of its properties is bound, that involve the transaction
contemplated herein or that, alone or in the aggregate, could reasonably be
expect to have a Material Adverse Effect.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
Section 3(e) hereof, (i) neither the Company nor any of its subsidiaries is in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other material agreement to which it is a party or by which its
property is bound, and (ii) 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
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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 best of the
Company's knowledge, the Company has no liabilities or obligations other than
those disclosed in the Transaction Agreements or the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since the Last
Audited Date, or which individually or in the aggregate, do not or would not
have a Material Adverse Effect. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the articles or certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the shareholders
of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries.
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 September 1, 2004, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
O. DILUTION. The number of shares issuable on conversion of
the Note and upon exercise of the Warrant may have a dilutive effect on the
ownership interests of the other shareholders (and Persons having the right to
become shareholders) of the Company. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have such a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Conversion
Shares upon conversion of the Note and the Warrant Shares upon exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company, and the Company will honor such obligations, including honoring
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every Notice of Conversion (as contemplated by the Note) and every Notice of
Exercise (as contemplated by the Warrant), unless the Company is subject to an
injunction (which injunction was not sought by the Company) prohibiting the
Company from doing so.
P. FEES TO BROKERS, FINDERS AND OTHERS. The Company has
taken no action which would give rise to any claim by any Person for brokerage
commission, finder's fees or similar payments by Lender relating to this
Agreement or the transactions contemplated hereby. Notwithstanding the
foregoing, the Company acknowledges that it has agreed to pay a single Due
Diligence Fee of $135,000 (the "Due Diligence Fee") to B&W Equities LLC (the
"Due Diligence Reviewer") for providing due diligence services to all the
Lenders in connection with the transactions contemplated hereby. Lender shall
have no obligation with respect to such fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
paragraph that may be due in connection with the transactions contemplated
hereby. The Company shall indemnify and hold harmless each of the Lender, its
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees, as and when incurred.
Q. CONFIRMATION. The Company confirms that all statements
of the Company contained herein shall survive acceptance of this Agreement by
the Lender for a period of eighteen (18) months from the Closing Date. The
Company agrees that, if any events occur or circumstances exist prior to the
Closing Date or the release of the Loan Amount to the Company which would make
any of the Company's representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Lender (directly or through
its counsel, if any) and the Escrow Agent in writing prior to such date of such
fact, specifying which representation, warranty or covenant is affected and the
reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Lender acknowledges that (1)
the Securities have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Provisions or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Lender shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Provisions) under the 1933 Act
or to comply with the terms and conditions of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Lender acknowledges and agrees
that, until such time as the relevant Shares have been registered under the 1933
Act, as contemplated by the Registration Rights Provisions and sold in
accordance with an effective Registration Statement or otherwise in accordance
with another effective registration statement, the certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
10
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
C. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Lender
under any United States laws and regulations applicable to the Company, or by
any domestic securities exchange or trading market, and to provide a copy
thereof to the Lender promptly after such filing.
D. REPORTING STATUS. So long as the Lender beneficially
owns any of the Securities 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/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it at least through the date which is sixty (60) days after the
later of the date on which (x) the Note has been converted or been paid in full
or (y) the Warrant have been exercised or have expired.
E. USE OF PROCEEDS. The Company will use the proceeds
received hereunder (excluding amounts paid by the Company for legal and escrow
fees and the Due Diligence Fee in connection with the sale of the Securities)
for general corporate purposes.
F. WARRANT. The Company agrees to issue to the Lender on
the Closing Date a transferable warrant (the "Warrant") for the purchase of
150,000 shares of Common Stock. The exercise price of the Warrant will be equal
to $2.50, subject to adjustment as provided in the Warrant. The Warrant shall be
exercisable initially six (6) months after the Closing Date and shall expire on
the last day of the calendar month in which the fifth anniversary of the Closing
Date occurs. Except as specified above, each Warrant shall generally be in the
form annexed hereto as ANNEX IV, and shall have the benefit of the Registration
Rights Provisions.
G. CERTAIN AGREEMENTS.
(i) If, at any time while the Note is outstanding,
the Company offers a New Transaction, then, provided the Holder is then able to
make representations similar to those provided in Section 2 hereof (subject to
the Company's providing information to the Holder to enable the Holder to make
such representations), the Company shall offer to exchange the outstanding Note
(valued at the principal plus accrued interest thereof) for the securities being
offered in such New Transaction offering on the same terms as being offered to
New Investors.
(ii) Nothing in the foregoing provisions reflects
either an obligation on the part of the Lender or any Holder to participate in
any New Transaction or a limitation on the Lender from participating in any New
Transaction.
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(iii) Any of the foregoing provisions of this Section
4(g) or any other provision of this Agreement or any of the other Transaction
Agreements to the contrary notwithstanding, the Company shall not engage in any
offers, sales or other transactions of its securities which would adversely
affect the exemption from registration available for the transactions
contemplated by the Transaction Agreements.
H. PIGGY-BACK RIGHTS; RULE 144.
(i) The Holder shall have piggy-back registration
rights with respect to the Registrable Securities subject to the conditions set
forth below. If the Company participates (whether voluntarily or by reason of an
obligation to a third party) in the registration of any shares of the Company's
stock (other than a registration on Form S-8 or on Form S-4), the Company shall
give written notice thereof to the Holder and the Holder shall have the right,
exercisable within ten (10) Trading Days after receipt of such notice, to demand
inclusion of all or a portion of the Holder's Registrable Securities in such
registration statement. If the Holder exercises such election, the Registrable
Securities so designated shall be included in the registration statement
(without any holdbacks) at no cost or expense to the Holder (other than any
commissions, if any, relating to the sale of Holder's shares). The Holder's
rights under this Section 4(h)(i) shall expire at such time as such Holder can
sell all of such Holder's remaining Registrable Securities under Rule 144 (as
defined below) without volume or other restrictions or limit.
(ii) With a view to making available to the Holder
the benefits of Rule 144 promulgated under the 1933 Act or 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 (collectively,
"Rule 144"), the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act; and
(c) furnish to the Holder so long as such party owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) if not available on the SEC's XXXXX system, a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested to permit the Holder to sell such securities
pursuant to Rule 144 without registration; and
(d) at the request of any Holder then holding Registrable
Securities, give the Transfer Agent instructions (supported by an opinion of
Company counsel, if required or requested by the Transfer Agent) to the effect
that, upon the Transfer Agent's receipt from such Holder of
(i) a certificate (a "Rule 144 Certificate")
certifying (A) that the Holder's holding period (as determined in accordance
with the provisions of Rule 144) for the Shares which the Holder proposes to
sell (the "Securities Being Sold") is not less than (1) year and (B) as to such
other matters as may be appropriate in accordance with Rule 144 under the
Securities Act, and
(ii) an opinion of counsel acceptable to the Company
(for which purposes it is agreed that Xxxxxxx & Prager LLP shall be deemed
acceptable if not given by Company counsel) that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to the provisions of
Rule 144, even in the absence of an effective registration statement,
12
the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent's books and records (except to the extent any such
legend or restriction results from facts other than the identity of the relevant
Holder, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Lender). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may be
necessary to effectuate the issuance of an unlegended certificate.
(iii) Notwithstanding the foregoing, if at any time or
from time to time after the date of effectiveness of the registration statement,
the Company notifies the Holder in writing of the existence of a Potential
Material Event (as defined below), the Holder shall not offer or sell any
Registrable Securities, or engage in any other transaction involving or relating
to the Registrable Securities, from the time of the giving of notice with
respect to a Potential Material Event until the Holder receives written notice
from the Company that such Potential Material Event either has been disclosed to
the public or no longer constitutes a Potential Material Event; PROVIDED,
HOWEVER, that the Company may not so suspend such right other than during a
Permitted Suspension Period. The term "Potential Material Event" means any of
the following: (i) the possession by the Company of material information not
ripe for disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (ii) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information.
I. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, a number of
shares (the "Minimum Available Shares") at least equal to one hundred percent
(100%) of the number of shares which would be issuable upon (x) conversion or
the outstanding Note or payment of all accrued interest thereon in Shares, and
(y) exercise of the outstanding Warrant held by all Holders (in each case,
whether such Note or Warrant were originally issued to the Holder, the Lender or
to any other party). For the purposes of such calculations, the Company should
assume that the Note and the Warrant were then convertible or exercisable
without regard to any restrictions which might limit any Holder's right to
convert the Note or exercise the Warrant held by any Holder.
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 Lender drafts of the applicable text of the first filing of a
Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
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 Days before such filing will be made) will not include in such
filing 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
13
SEC as well as any descriptive text accompanying or part of such filing which is
accurate and reasonably determined by the Company's counsel to be legally
required. Notwithstanding, but subject to, the foregoing provisions of this
Section 4(i), the Company will, after the Closing Date, promptly issue a press
release and file a Current Report on Form 8-K or, if appropriate, a quarterly or
annual report on the appropriate form, referring to the transactions
contemplated by the Transaction Agreements.
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 its transfer agent no instructions inconsistent with
instructions to issue Common Stock from time to time upon conversion of the Note
or exercise of the Warrant in such amounts as specified from time to time by the
Company to the transfer agent, bearing the restrictive legend specified in
Section 4(b) of this Agreement prior to registration of the Shares under the
1933 Act, registered in the name of the Lender or its nominee and in such
denominations to be specified by the Holder in connection with each conversion
of the Note or exercise of the Warrant. Except as so provided, the Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the other Transaction Agreements.
Nothing in this Section shall affect in any way the Lender's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Lender provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Lender of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Conversion Shares or Warrant Shares,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Lender.
B. Subject to the provisions of this Agreement, the Company
will permit the Lender to convert the Note in the manner contemplated by the
Note and to exercise the Warrant in the manner contemplated by the Warrant.
C. (i) The Company understands that a delay in the
issuance of the Shares of Common Stock beyond the Delivery Date (as defined in
the Note) could result in economic loss to the Lender. As compensation to the
Lender for such loss, the Company agrees to pay late payments to the Lender for
late issuance of Shares upon conversion in accordance with the following
schedule (where "No. Business Days Late" refers to the number of Trading Days
which is beyond two (2) Trading Days after the Delivery Date):1
Late Payment For Each $10,000
of Principal or Interest
No. Business Days Late Being Converted
-------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
--------------------------
1 Example: Notice of Conversion is delivered on Monday, August 1, 2005.
The Delivery Date would be Thursday, August 4 (the third Trading Day after such
delivery). If the certificate is delivered by Monday, August 8 (2 Trading Days
after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on August 9, that is 1 "Business Day Late" in the
table below; if delivered on August 16, that is 6 "Business Days Late" in the
table.
14
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c)) for such delay. Furthermore, in
addition to any other remedies which may be available to the Lender, in the
event that the Company fails for any reason to effect delivery of such shares of
Common Stock by close of business on the tenth Trading Day after the Delivery
Date, the Lender will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company, whereupon the Company and the
Lender shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion; provided, however, that an amount equal
to any payments contemplated by this Section 5(c) which have accrued through the
date of such revocation notice shall remain due and owing to the Converting
Holder notwithstanding such revocation.
(ii) If, by the close of business on the fifth
Trading Day after the Delivery Date, the Company fails for any reason to deliver
the Shares to be issued upon conversion of the Note and after such fifth Trading
Day, the Holder of the Note being converted (a "Converting Holder") purchases,
in an arm's-length open market transaction or otherwise, shares of Common Stock
(the "Covering Shares") in order to make delivery in satisfaction of a sale of
Common Stock by the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon such
conversion (a "Buy-In"), the Converting Holder shall have the right, in addition
to and not in lieu of all other amounts contemplated in other provisions of the
Transaction Agreements, including, but not limited to, the provisions of the
immediately preceding Section 5(c)(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 Converting 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 Converting Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Converting
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
Converting Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount which Company will be required to pay to the Converting Holder
will be $1,000.
D. The provisions of this paragraph apply on or after the
effective date of the registration statement covering the resale of the Shares.
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 Note 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 its compliance with the provisions contained in
this paragraph, so long as the certificates therefor do not bear a legend and
the Holder thereof is not obligated to return such certificate for the placement
of a legend thereon, the Company shall use its best efforts to cause the
Transfer Agent to electronically transmit to the Holder the Common Stock
issuable
15
upon conversion of the Note 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. In connection
therewith, it will be the Holder's obligation to obtain formal requirements,
such as medallion guaranty, if necessary.
E. 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.
F. The Holder of the Note shall be entitled to exercise its
conversion privilege with respect to the Note notwithstanding the commencement
of any case under 11 U.S.C. ss.101 ET SEQ. (the "Bankruptcy Code"). In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to
the fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of such holder's conversion privilege. The Company hereby
waives, to the fullest extent permitted, any rights to relief it may have under
11 U.S.C. ss.362 in respect of the conversion of the Note. The Company agrees,
without cost or expense to such Holder, to take or to consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss.362.
G. The Company will authorize the Transfer Agent to give
information relating to the Company directly to the Holder or the Holder's
representatives upon the request of the Holder 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 shareholders (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 Transactions shall occur on the
Closing Date at the offices of the Escrow Agent and shall take place no later
than 3:00 P.M., New York time, on such day or such other time as is mutually
agreed upon by the Company and the Lender.
C. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Funds to the
Company and to others and to release the other Escrow Property on the Closing
Date upon satisfaction of the conditions set forth in Sections 7 and 8 hereof
and as provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell the
Note and the Warrant to the Lender pursuant to this Agreement on the Closing
Date is conditioned upon:
A. The execution and delivery of this Agreement by the
Lender;
B. Delivery by the Lender to the Escrow Agent of good funds
as payment in full of an amount equal to the Loan Amount in accordance with this
Agreement;
16
C. The accuracy on such Closing Date of the representations
and warranties of the Lender contained in this Agreement, each as if made on
such date, and the performance by the Lender on or before such date of all
covenants and agreements of the Lender required to be performed on or before
such date; and
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to purchase
the Note and the Warrant on the Closing Date is conditioned upon:
A. The execution and delivery of this Agreement and the
other Transaction Agreements by the Company;
B. Delivery by the Company to the Escrow Agent of the
Certificates in accordance with this Agreement;
C. The accuracy in all material respects on the 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;
D. On the Closing Date, the Lender shall have received an
opinion of counsel for the Company, dated the Closing Date, in form, scope and
substance reasonably satisfactory to the Lender, substantially to the effect set
forth in ANNEX III attached hereto;
E. 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
F. From and after the date hereof to and including the
Closing Date, each of the following conditions will remain in effect: (i) the
trading of the Common Stock shall not have been suspended by the SEC or on the
Principal Trading Market; (ii) trading in securities generally on the Principal
Trading Market shall not have been suspended or limited; (iii) no minimum prices
shall been established for securities traded on the Principal Trading Market;
and (iv) there shall not have been any material adverse change in any financial
market.
9. INDEMNIFICATION AND REIMBURSEMENT.
A. (i) The Company agrees to indemnify and hold
harmless the Lender and its officers, directors, employees, and agents, and each
Lender 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 Lender, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and any such Lender 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 Lender's failure to perform any covenant or agreement contained in this
Agreement or the Lender's or its officer's, director's, employee's,
17
agent's or Lender Control Person's gross negligence, recklessness or bad faith
in performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Lender,
other than by reason of its gross negligence, illegal or willful misconduct (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 shareholder 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 Lender 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 Lender from and against and in respect of all losses, claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Lender, directly or indirectly, and reimburse such Lender 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
Lender who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Lender Control Persons (if any), as
the case may be, of the Lender 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 Lender, any such Affiliate and any such
Person. The Company also agrees that neither the Lender nor any such Affiliate,
partner, director, agent, employee or Lender Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, except as may be expressly and
specifically provided in or contemplated by this Agreement.
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.
18
(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, 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.
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(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.
(ii) In the event any Indemnified Party should have a
claim under paragraph (a) of this Section against the Indemnifying Party that
does not involve a Third Party Claim, the Indemnified Party shall deliver a
written notification of a claim for indemnity under paragraph (a) of this
Section specifying the nature of and basis for such claim, together with the
amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will 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 it 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 Lender hereby
waive a trial by jury in any action, proceeding or counterclaim brought by
either of the Parties hereto against the other in respect of any matter arising
out or in connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
A. (i) 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 Lender for any reasonable legal fees and disbursements incurred by the
Lender in
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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.
(ii) The Company and the Lender acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement or the other Transaction Agreements were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
the other Transaction Agreements and to enforce specifically the terms and
provisions hereof and thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
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.
12. 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):
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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
LENDER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
ESCROW AGENT: Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Lender's representations and warranties herein shall survive
the execution and delivery of this Agreement and the delivery of the
Certificates and the payment of the Loan Amount, and shall inure to the benefit
of the Lender and the Company and their respective successors and assigns.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, with respect to the Loan Amount specified below,
this Agreement has been duly executed by the Lender and the Company as of the
date set first above written.
LOAN AMOUNT: $1,500,000
LENDER:
Address:
c/o Beacon Fund Advisors DOUBLE U MASTER FUND, L.P.
Xxxxxxx Xxxxx, Xxxxxxxxxx Xxxxx
Xxxx Xxxx, Xxxxxxx By: /s/ Navigator Management Limited
British Virgin Islands (Signature of Authorized Person)
Telephone No. (000) 000-0000 Navigator Management Limited, Authorized
Telecopier No. (000) 000-0000 Signatory
By: /s/ Xxxxx Xxxx
BVI (Signature of Authorized Person)
----------------------------------
Jurisdiction of Incorporation Xxxxx Xxxx, Authorized Signatory
or Organization
and
By: /s/ Xxxxxx xx Xxxxxx
(Signature of Authorized Person)
Xxxxxx xx Xxxxxx, Authorized Signatory
COMPANY
AMEDIA NETWORKS, INC.
By: /s/ Xxxxx Xxxxxxx
(Signature of Authorized Person)
Xxxxx Xxxxxxx, Chief Executive Officer
Printed Name and Title
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