EXHIBIT 10.35
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance
set forth below, is entered into by and between NEW VISUAL CORPORATION, a Utah
corporation with headquarters located at 0000 Xxxxxx Xxxx, Xxxxx 000, Xxx Xxxxx,
XX 00000 (the "Company"), and each individual or entity named on a signature
page hereto (as used herein, each such signatory is referred to as the "Lender")
(each agreement with a Lender being deemed a separate and independent agreement
between the Company and such Lender, except that each Lender acknowledges and
consents to the rights granted to each other Lender [each, an "Other Lender"]
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 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, the Lender wishes to lend funds 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 7% Convertible
Debentures Series 03-2 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 hereby agrees to loan to the Company the
principal amount set forth on the Lender's signature page of this Agreement (the
"Aggregate Purchase Price"), out of the aggregate amount being loaned by all
Lenders of $2,000,000 (the "Total Purchase Price").
(ii) The Aggregate Purchase Price shall be deposited by the Lender with
the Escrow Agent by the Trading Day immediately before the Initial Closing Date
(as those terms are defined below).
(iii) The Aggregate Purchase Price shall be released to the Company,
subject to the terms of this Agreement and the Joint Escrow Instructions (as
defined below), as follows: (a) fifty percent (50%) of the Aggregate Purchase
Price (the "Initial Purchase Price") shall be paid to the Company on the Initial
Closing Date, and (b) fifty percent (50%) of the Aggregate Purchase Price (the
"Additional Purchase Price") shall be paid to the Company on the Additional
Closing Date (as defined below). The applicable portion of the Aggregate
Purchase Price paid to the Company on or in connection with the relevant Closing
Date (as defined below) is referred to as the "Purchase Price" for such Closing
Date.
(iv) The obligation to repay the loan of the relevant Purchase Price
from the Lender shall be evidenced by the Company's issuance of one or more
Convertible Debentures to the Lender in such principal amount (the Convertible
Debentures issued to the Lender, the "Debentures"). Each Debenture (i) shall
provide for 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 Debenture or in the other Transaction
Agreements, and (ii) shall have the terms and conditions of, and be
substantially in the form attached hereto as, ANNEX I. The loan to be made by
the Lender and the issuance of the Debentures and the Warrants to the Lender are
sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Debentures and Warrants.
(v) The Purchase Price to be paid by the Lender shall be equal to the
face amount of the Debentures being purchased on the relevant Closing Date (as
defined below) and shall be payable in United States Dollars.
(vi) With respect to the Initial Closing Date, the Company will deliver
the relevant Certificates (as defined below) to the Escrow Agent within five (5)
Trading Days after the Escrow Agent notifies the Company that the Escrow Agent
has on deposit cleared funds equal to (x) at least $1,000,000 of the Aggregate
Purchase Price (the "Minimum Purchase Price") for one or more Lenders and (y)
thereafter, any additional Initial Purchase Price. Such Certificates shall be
held in escrow as provided in the Joint Escrow Instructions.
(vi) With respect to the Additional Closing Date, the Company will
deliver the relevant Certificates to the Escrow Agent as provided in Section
6(b) hereof.
b. CERTAIN DEFINITIONS. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
"Additional Closing Date" means the date of the closing of the purchase
and sale of the Additional Debentures and the Additional Warrants, as provided
herein.
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"Additional Debentures" means the Debentures issued on the Additional
Closing Date.
"Additional Warrants" means the Warrants issued on the Additional
Closing Date.
"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.
"Bid Price" shall mean the 4:00 P.M. closing bid price of the Common
Stock on the Principal Trading Market on the relevant Trading Day(s).
"Certificates" means the relevant Debentures and the relevant Warrants,
each duly executed by the Company and issued on the relevant Closing Date in the
name of the Lender.
"Closing Date" means the relevant Initial Closing Date or the
Additional Closing 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 (as
defined below).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures (including, if relevant, accrued interest on the
Debentures so converted).
"Disclosure Letter" means a letter and any modifications thereof, the
latest of which is dated at least two Trading Days prior to the Initial Closing
Date, from the Company to the Lenders.
"Effective Date" means the date the Registration Statement covering the
Registrable Securities is declared effective by the SEC.
"Escrow Agent" means the escrow agent identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions").
"Escrow Funds" means the Purchase Price 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.
"Finder" means Clearview International Investments Limited.
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"Fixed Conversion Price" means $0.15 (as that amount may be adjusted as
provided in the Debenture or herein).
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Initial Closing Date" means the date of the closing of the purchase
and sale of the Initial Debentures and the Initial Warrants, as provided herein.
"Initial Debentures" means the Debentures issued on the Initial Closing
Date.
"Initial Warrants" means the Warrants issued on the Initial Closing
Date.
"Last Audited Date" means October 31, 2002.
"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.
"Lender's Allocable Share" means the fraction, of which (i) the
numerator is the Lender's Aggregate Purchase Price and (ii) the denominator is
the Total Purchase Price.
"Majority in Interest of the Holders" means one or more Holders whose
respective Aggregate Purchase Prices aggregate more than fifty percent (50%) of
the Total Purchase Price.
"Material Adverse Effect" means an event or combination of events,
which individually or in the aggregate, would reasonably be expected to (w)
adversely affect the legality, validity or enforceability of the Securities or
any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, prospects, or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole, (y)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Agreements or the transactions
contemplated thereby, or (z) materially and adversely affect the value of the
rights granted to the Lender in the Transaction Agreements.
"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."
"Registrable Securities" shall have the meaning ascribed to it in the
Registration Rights Agreement.
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"Registration Rights Agreement" means the Registration Rights Agreement
in the form annexed hereto as ANNEX IV as executed by the Lender and the Company
simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration statement
covering the Registrable Securities.
"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.
"Securities" means the Debentures, the Warrants and the Shares.
"Shares" means the shares of Common Stock representing any or all of
the Conversion Shares and the Warrant Shares.
"State of Incorporation" means Utah.
"Strategic Partner" means a third party unaffiliated with the Company
as of the date 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) subsequently purchases equity securities of the Company (or securities
convertible into equity securities of the Company), where such purchase is
accompanied or followed by any 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.
"Transaction Agreements" means the Securities Purchase Agreement, the
Registration Rights Agreement, the Debentures, the Joint Escrow Instructions,
and the Warrants, and includes all ancillary documents referred to in those
agreements.
"Transfer Agent" means, at any time, the transfer agent for the
Company's Common Stock.
"Warrants" means the Initial Warrants or the Additional Warrants or
both of them, as the context may require.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
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c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Lender shall pay the Aggregate Purchase Price by delivering
immediately available good funds in United States Dollars to the Escrow Agent no
later than the date prior to the Initial Closing Date.
(ii) No later than the Initial Closing Date, but in any event promptly
following payment by the Lender to the Escrow Agent of the Initial Purchase
Price, the Company shall deliver the Certificates for the Initial Debentures and
the Initial Warrants, each duly executed on behalf of the Company and issued in
the name of the Lender, to the Escrow Agent. The Company will deliver the
Certificates for the Additional Debentures and the Additional Warrants to the
Escrow Agent as provided in Section 6 hereof.
(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 relevant Purchase
Price shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx LLP
Account No.: [To be provided to the Lender by Xxxxxxx & Prager LLP]
Re: New Visual Nov 03-2 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.
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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
Debentures and the Warrants 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 VII hereto (the documents listed on such Annex VII, to the
extent available on XXXXX or otherwise provided to the Lender as indicated on
said Annex VII, 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 the Finder or any of their respective officers, directors and
employees or any of their respective attorneys or agents or the Finder, except
as specifically set forth herein. The Finder is a third party beneficiary of
this provision.
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.
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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 Initial 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 Debentures,
the Warrants or the Shares. No party other 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. The authorized capital stock of the Company
consists of (i) 500,000,000 shares of Common Stock, $.001 par value per share,
of which approximately 70,047,514 are outstanding as of the date hereof, and
(ii) 15,000,000 shares of Preferred Stock, $.01 par value, with following series
designated: (A) 200,000 shares of Series A Preferred Stock, of which none are
outstanding as of the date hereof, (B) 4,000 shares of Series B Preferred Stock,
of which 3,192 are outstanding as of the date hereof, (C) 57,894.201 shares of
Series C Preferred Stock, of which 57,894.201 are outstanding as of the date
hereof, (D) 9,090.909 shares of Series D Preferred Stock, of which 9,090.909 are
outstanding as of the date hereof, and (E) 25,000 shares of Series E Preferred
Stock, of which 25,000 are outstanding as of the date hereof. 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. As of the Initial Closing Date, the Shares shall have been duly
authorized by all necessary corporate action on the part of the Company, and,
when issued on the conversion of, or as interest on, the Debentures in
accordance with their terms or upon exercise of the Warrants in accordance with
their terms, will be 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.
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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 Debentures,
the Warrants 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 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 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 November 1, 2002, 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
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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, 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, 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:
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(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.
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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 May 1, 2003, 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
Debentures and upon exercise of the Warrants 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 Debentures and the Warrant Shares upon exercise of
the Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company, and the Company will honor such obligations, including honoring
every Notice of Conversion (as contemplated by the Debentures) and every Notice
of Exercise (as contemplated by the Warrants), 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. Except for payment of the fees
to the Finder's Compensation (as defined below) to the Finder, payment of which
is the sole responsibility of the Company, 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
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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 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. The term "Finder's Compensation" means, in connection with the
consummation of the transactions contemplated by this Agreement, the
consideration contemplated by the Joint Escrow Instructions.
q. CONFIRMATION. The Company confirms that all statements of the
Company contained herein shall survive acceptance of this Agreement by the
Lender. The Company agrees that, if any events occur or circumstances exist
prior to the relevant Closing Date or the release of the relevant Purchase Price
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.
(i) 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 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 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 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 Lender
agrees that, without the express written consent of the Company in each
instance, it will not transfer a Debenture or a Warrant to any Person which is
known to be in the same business as the Company or known to be a subsidiary or
affiliate of such a Person.
13
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 Agreement, 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):
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, 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) all of the Debentures have been converted or 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 proceeds received
hereunder (excluding amounts paid by the Company for Finder's Compensation in
connection with the sale of the Securities or legal and escrow fees contemplated
by the Joint Escrow Instructions) (i) first, to the satisfaction in full of the
outstanding obligations, if any, under that certain $300,000 7% Convertible
Debenture Series 03-1 Due April 30, 2004 originally issued by the Company on or
about October 31, 2003 (the "Series 03-1 Debenture"), and (ii) then, for general
corporate purposes.
14
f. WARRANTS. The Company agrees to issue to the Lender on each Closing
Date transferable warrants (the "Warrants"), with cashless exercise rights, for
the purchase of one (1) share of Common Stock for each Issue Date Conversion
Shares (as defined below). The exercise price of the Warrants will be equal to
$0.25, subject to adjustment as provided in the Warrant. The Warrants will
expire on the last day of the calendar month in which the fifth annual
anniversary of the relevant Closing Date occurs. Each of the Warrants shall be
in the form annexed hereto as ANNEX V. The Warrant Shares shall be subject to
the provisions of the Registration Rights Agreement. The term "Issue Date
Conversion Share" means the number of shares of Common Stock equal to (x) the
Purchase Price for the relevant Closing Date, divided by (y) the Conversion
Price in effect on such Closing Date.
g. CERTAIN AGREEMENTS.
(i) The Company covenants and agrees that, except for the sale of
Debentures and Warrants to the Other Lenders and subject to the other provisions
of this Section 4(g), during the period (the "New Transaction Period") from the
Initial Closing Date and continuing through and including the Final Lock-up Date
(as defined below), it will not, without the prior written consent of a Majority
in Interest of the Holders in each instance, enter into any subsequent or
further offer or sale of Common Stock or securities convertible into and/or
other rights exercisable for the issuance of Common Stock (collectively, "New
Common Stock") to or with any third party (any such offer or sale of New Common
Stock, a "New Transaction"). The term "Final Lock-up Date" means the date which
is one hundred eighty (180) 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.(1)
(ii) In the event there is a New Transaction which breaches the
provisions of this Section 4(g) (it being understood by the parties that a
Permitted New Transaction, an Allowed New Transaction or an Excluded New
Transaction, as those terms are defined below, does not constitute such a
breach),
(A) the Conversion Price on any Unconverted Debenture (as defined in
the Debenture) or on any Additional Debenture to be issued on a later
date shall be adjusted to an amount (the "Adjusted Conversion Price")
equal to the lowest of (1) ninety percent (90%) of the then existing
Conversion Price, or (2) eighty percent (80%) of the of the lower of
(X) the lowest fixed purchase price of any shares of the New Common
Stock contemplated in the New Transaction or (Y) the lowest conversion
price which would be applicable under the terms of the New Transaction;
----------------
(1) By way of illustration: If the sale of Registrable Securities was suspended
for ten (10) days in the interim, the applicable Final Lock-up Date will be one
hundred ninety (190) days after the Effective Date. If on the 188th day after
the Effective Date, the sale of Registrable Securities was suspended again for
five (5) days, the Final Lock-up Date will be one hundred ninety-five (195) days
after the Effective Date.
15
(B) with respect to all portions of the principal and interest of any
Debenture converted prior to such date (or converted before the
adjustment referred to in the immediately preceding subparagraph (A) is
effected), the Company will issue to the Holder additional shares of
Common Stock ("Additional Shares") equal to the excess, if any, of (1)
(X) the aggregate amount of the principal and accrued interest of the
Debenture so converted, divided by (Y) the Adjusted Conversion Price,
over (2) the number of Conversion Shares and Additional Shares, if any,
previously issued in connection with such conversion;
(C) if the provisions of the 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 of the
Debenture,(2) or if the terms which are beneficial to the Company in
the Debenture are not included in the corresponding instrument in the
New Transaction,(3) then, unless waived by the Holder, the Debenture
terms shall be modified to reflect similar terms (based on the original
issue date of the Debentures);
(D) the number of Warrants issued or to be issued on a subsequent date
shall be adjusted to equal the highest of (1) the number of Warrant
Shares originally contemplated by this Agreement, or (2) the number of
shares equal to one hundred percent (100%) or the Alternative Warrant
Percentage (as defined below), whichever is higher, of (I) the Purchase
Price divided by (II) the lower of (x) the Bid Price for the Trading
Day immediately preceding the initial closing date of the New
Transaction or (y) the Conversion Price or the Adjusted Conversion
Price for the initial closing date of the New Transaction, whichever is
lower;
(E) the Exercise Price on the Warrants shall be adjusted to equal the
lowest of (1) the then existing Exercise Price, (2) the lowest Exercise
Price applicable to the New Transaction, or (3) one hundred sixty-six
and 66/100 percent (166.66%) of the Adjusted Conversion Price;
----------------
(2) Without limiting the foregoing, by way of example: the maturity date of the
instrument in the New Transaction is more than three years from its original
issue date.
(3) Without limiting the foregoing, by way of example: the instrument does not
provide that the Company may prepay or redeem the instrument or give notice
requiring a mandatory conversion prior to the maturity date or does not provide
for mandatory conversion on the maturity date on terms similar to those provided
in the Debenture.
16
(F) if the provisions of the warrant, option or similar instrument
(howsoever denominated), if any, of the New Transaction are more
beneficial to the holder of such instrument than the corresponding
terms of the Warrant,(4) or if the terms which are beneficial to the
Company in the Warrant are not included in the corresponding instrument
in the New Transaction, then, unless waived by the Holder, the Warrant
terms shall be modified to reflect similar terms (based on the original
issue date of the Warrants); and
(G) the Holder will have such other rights as are provided in the
Debenture.
(iii) Anything in the foregoing provisions of this Section 4(g) to the
contrary notwithstanding, during the New Transaction Period, the Lender hereby
gives the Lender's consent to the Company's entering into a New Transaction
which is a Permitted New Transaction (as defined below) or an Allowed New
Transaction (as defined below) during the New Transaction Period (and any
Permitted New Transaction or any Allowed New Transaction shall not be deemed a
breach of the provisions of this Section 4(g)), provided, however, that if there
is an Allowed New Transaction:
(A) the Conversion Price on any Unconverted Debenture or any Additional
Debenture to be issued at a subsequent date shall be adjusted to an
amount (the "Alternative Conversion Price") equal to the lower of (1)
the then existing Conversion Price, or (2) the lower of (X) the lowest
fixed purchase price of any shares of the New Common Stock contemplated
in the Allowed New Transaction or (Y) the lowest conversion price which
would be applicable under the terms of the Allowed New Transaction;
(B) with respect to all portions of the principal and interest of any
Debenture converted prior to such date (or converted before the
adjustment referred to in the immediately preceding subparagraph (A) is
effected), the Company will issue to the Holder additional shares of
Common Stock ("Additional Shares") equal to the excess, if any, of (1)
(X) the aggregate amount of the principal and accrued interest of the
Debenture so converted, divided by (Y) the Alternative Conversion
Price, over (2) the number of Conversion Shares and Additional Shares,
if any, previously issued in connection with such conversion;
(C) if the provisions of the debenture or similar instrument (howsoever
denominated), if any, of the Allowed New Transaction are more
beneficial to the holder of such instrument than the corresponding
terms of the Debenture,(5) or if the terms which are beneficial to the
Company in the Debenture are not included in the corresponding
instrument in the Allowed New Transaction,(6) then, unless waived by
the Holder, the Debenture terms shall be modified to reflect similar
terms (based on the original issue date of the Debentures);
-------------------
(4) Without limiting the foregoing, by way of example: the expiration date of
the instrument in the New Transaction is more than five years from its original
issue date.
(5) Without limiting the foregoing, by way of example: the maturity date of the
instrument in the Allowed New Transaction is more than three years from its
original issue date.
(6) Without limiting the foregoing, by way of example: the instrument in the
Allowed New Transaction does not provide that the Company may prepay or redeem
the instrument or give notice requiring a mandatory conversion prior to the
maturity date or does not provide for mandatory conversion on the maturity date
on terms similar to those provided in Debenture.
17
(D) the number of Warrants issued or to be issued shall be adjusted to
equal the higher of (1) the number of Warrant Shares originally
provided in the Warrants or (2) the number of shares equal to (x) (I)
the higher of one hundred percent (100%) or (II) the Alternative
Warrant Percentage (as defined below) of (y) (I) the Purchase Price
divided by (II) lower of the Conversion Price or the Alternative
Conversion Price for the initial closing date of the Allowed New
Transaction;
(E) the Exercise Price on the Warrants shall be adjusted to equal the
lower of (1) the then existing Exercise Price, or (2) the lowest
Exercise Price applicable to the Allowed New Transaction; and
(F) if the provisions of the warrant, option or similar instrument
(howsoever denominated), if any, of the Allowed New Transaction are
more beneficial to the holder of such instrument than the corresponding
terms of the Warrant,(7) or if the terms which are beneficial to the
Company in the Warrant are not included in the corresponding instrument
in the Allowed New Transaction,(8) then, unless waived by the Holder,
the Warrant terms shall be modified to reflect similar terms (based on
the original issue date of the Warrants).
(iv) The term "Permitted New Transaction" means a New Transaction for
the sale of any Company security, subject to the following terms, conditions and
adjustments: (A) such offer and sale shall be made only to one or more
accredited investors and shall qualify as a Permitted Prospective Investment (as
defined below); (B) the maximum amount raised in such offer and sale (before
payment of fees and expenses) shall be $7,000,000, less the sum of the Total
Purchase Price and the gross amount of any previously consummated Allowed New
Transactions and any previously consummated Permitted New Transactions; and (C)
the registration statement covering the New Common Stock of the Permitted New
Transaction shall not be filed prior to six (6) months after the Effective Date.
The term "Permitted Prospective Investment" means one or more of the
transactions more particularly described in the Disclosure Letter (and certified
as being true as of such date by the executive officer of the Company).
------------------
(7) Without limiting the foregoing, by way of example: the expiration date of
the instrument in the Allowed New Transaction is more than three years from its
original issue date.
(8) Without limiting the foregoing, by way of example: the instrument does not
provide that the Company may accelerate the expiration date of the instrument.
18
(v) The term "Allowed New Transaction" means a New Transaction other
than a Permitted New Transaction, subject to the following terms, conditions and
adjustments: (A) such offer and sale shall be made only to accredited investors;
(B) the maximum amount raised in such offer and sale (before payment of fees and
expenses) shall be $7,000,000 less the sum of the Total Purchase Price and the
gross amount of any previously consummated Permitted New Transactions and any
previously consummated Allowed New Transactions; and (C) the registration
statement covering the New Common Stock of the Allowed New Transaction shall not
be filed earlier than the date which is six (6) months after the Effective Date;
provided, however, that if the Company offers any securities which would be an
Allowed New Transaction, the provisions of subparagraph (vii) shall apply to
such offer.
(vi) The term "Alternative Warrant Percentage" means (x) the number of
shares which are eligible to be purchased under the warrant, option or other
right (howsoever denominated) issued in the New Transaction ("New Transaction
Warrants"), including any Allowed New Transaction, divided by (y) 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).
(vii) The following provisions shall apply to an Allowed New
Transaction:
(A) Before consummating the Allowed New Transaction with any
Person other than the Lender (such other Person, an "Allowed Investor"), the
Company shall give written notice (an "Allowed New Transaction Notice") to the
Lender summarizing all of the terms of such offer (a "Allowed New Transaction
Offer") and indicating both the date on which the Allowed New Transaction is
expected to close, which date shall not be earlier than fifteen (15) business
days after the date of the Allowed New Transaction Notice, and the date of the
first funding by the investors in the Allowed New Transaction, which date shall
not be earlier than thirty (30) days after the date of the Allowed New
Transaction Notice.
(B) If there is more than one Lender signatory to this
Agreement, the provisions of this Section 4(g)(vii) shall apply pro rata among
them (based on their relative Lender's Allocable Shares).
(C) The Lender shall have the right (the "Right of First
Refusal"), exercisable by written notice given to the Company (the "Lender's
Right of First Refusal Exercise Notice") by the close of business on the seventh
business day after the Lender's receipt of the Allowed New Transaction Notice
(the "Right of First Refusal Expiration Date"), to participate in the Allowed
New Transaction Offer on the terms so specified. The amount of such
participation, if any, elected by the Lender may be (i) no participation, (ii)
an amount equal to the Lender's Allocable Share of the Allowed New Transaction
(the "Full Allocable Amount"), (iii) a specific amount which is less than the
Full Allocable Amount, or (iv) if, but only if, the Lender elects the Full
Allocable Amount, such additional amount as may be specified by the Lender in
the Lender's Right of First Refusal Exercise Notice (which election is subject
to the terms of subparagraph (D) of this Section 4(g)(vii)).
19
(D) If there is more than one Lender signatory to this
Agreement, the provisions of this Section 4(g)(vii) shall apply pro rata among
them (based on their relative Lender's Allocable Shares), except that, to the
extent any such Lender does not exercise its Right of First Refusal in full (a
"Declining Lender"), the remaining Lender or Lenders who or which have exercised
their own Right of First Refusal in full, shall have the right (pro rata among
them based on their relative Lender's Allocable Shares, if more than one) to
exercise all or a portion of such Declining Lender's unexercised Right of
Refusal. This right must be elected in the Lender's Right of First Refusal
Exercise Notice, as provided in the immediately preceding subparagraph (C) of
this Section 4(g)(vii).
(E) If, and only if, the Lender and Other Lenders, in the
aggregate, do not exercise the Right of First Refusal for one hundred percent
(100%) of the Allowed New Transaction, the Company may consummate the remaining
portion of the Allowed New Transaction with any other investor on the terms
specified in the Allowed New Transaction Offer within thirty (30) days of the
Right of First Refusal Expiration Date (such thirtieth day, the "Allowed New
Transaction Expiration Date"), even if the Allowed New Transaction Expiration
Date is after the Final Lock-up Date.
(F) If the terms of the Allowed New Transaction to be
consummated with such Allowed Investor differ from the terms specified in the
Allowed New Transaction Offer so that the terms are more beneficial in any
respect to the Allowed Investor, the Company shall give the Lender an Allowed
New Transaction Offer relating to the terms of the Allowed New Transaction, as
so changed, and the Lender's Right of First Refusal and the preceding terms of
this Section 4(g)(vii) shall apply with respect to such changed terms.
(viii) The foregoing provisions of Section 4(g) do not apply to the
issuance of New Common Stock (a) in connection with a Person's exercise of
conversion or other rights it may have under documents executed and transactions
consummated prior to the date of this Agreement, (b) pursuant to an Employee
Stock Option Plan (an "ESOP") of the Company, such ESOP having been properly
approved by the shareholders of the Company prior to the date of this Agreement,
(c) pursuant to a consultants' stock option plan (a "CSOP") of the Company, as
such plan exists on the Initial Closing Date, (d) of up to an aggregate of
3,000,000 shares of which (1) up to 1,000,000 shares may be used as compensation
to executive officers or senior management of the Company initially hired on or
after December 1, 2003, (2) up to 1,000,000 shares may be used to retire
deferred cash compensation owing to employees and directors as of the Initial
Closing Date, and (3) up to 1,000,000 shares may be issued to officers and
directors of the Company as compensation, including in exchange for deferred
compensation, or (e) to a Strategic Partner as part of the establishment of the
relationship between the Company and such Strategic Partner (provided none of
the shares issued or issuable to the Strategic Partner or its designees can be
registered prior to the date which is nine [9] months after the Effective Date).
Any issuance contemplated by this subparagraph (viii) is referred to as an
"Excluded New Transaction."
20
(ix) Nothing in the foregoing provisions reflects either an obligation
on the part of any Lender to participate in any New Transaction or a limitation
on any Lender from participating in any New Transaction.
(xi) 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. 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 (x) one hundred twenty-five
percent (125%) of the number of shares of Common Stock issuable as may be
required to satisfy the conversion rights of the Holders of principal on all
outstanding Convertible Debentures plus (y) one hundred ten percent (110%) of
the number of shares issuable upon exercise of all outstanding Warrants held by
all Holders (in each case, whether such Convertible Debentures or Warrants were
originally issued to the Holder, the Lender or to any other party). For the
purposes of such calculations, the Company should assume that all Debentures,
including without limitation, the Additional Debentures, were then issued and
convertible and all Warrants, including without limitation the Additional
Warrants, were then issued and exercisable, in each case 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.
i. 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. In furtherance of the foregoing, the
Company will provide to the Lender drafts of the applicable text of any filing
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 three
(3) business days before such filing will be made) and will not include in such
filing any statement or statements or other material to which the other party
reasonably objects. 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).
j. COMPANY PRINCIPAL AGREEMENTS. The Company hereby agrees that, no
later than the Initial Closing Date, the Company will cause each of the persons
named at the head of ANNEX VIII attached hereto (each, a "Company Principal"),
each of whom is a director or a principal officer or employee of the Company,
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 such Company
Principal's shares of the Company's Common Stock (or instruments convertible
into or exercisable for such shares). Each Company Principal's Agreement shall
be substantially in the form set forth in ANNEX VIII attached hereto.
21
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 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 Debentures. 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 of the Warrant Shares, 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 Lender.
b. Subject to the provisions of this Agreement, the Company will permit
the Lender to exercise its right to convert the Debentures in the manner
contemplated by the Debentures and to exercise the Warrants in the manner
contemplated by the Warrants.
[Balance of page intentionally left blank]
22
c. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date (as defined in the Debentures) 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 business days which is beyond two
(2) business days after the Delivery Date):(9)
Late Payment For Each $10,000
of Debenture Principal or Interest
No. Business Days Late Amount Being Converted
--------------------------------------------------------------------------------
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 as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c) and the provisions of the immediately
following Section 5(d) of this Agreement) 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 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.
--------------------
(9) Example: Notice of Conversion is delivered on Monday, December 1, 2003. The
Delivery Date would be Monday, December 8 (the fifth business day after such
delivery). If the certificate is delivered by Wednesday, December 10 (2 business
days after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on December 11, that is 1 "Business Day Late" in the
table below; if delivered on December 18, that is 6 "Business Days Late" in the
table.
23
d. If, by the relevant Delivery Date, the Company fails for any reason
to deliver the Shares to be issued upon conversion of a Debenture and after such
Delivery Date, the Holder of the Debentures 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, to require the Company to pay to the Converting Holder, in
addition to and not in lieu of the amounts due under Section 5(c) hereof (but in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (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 Company 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.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, 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 the Common Stock issuable upon
conversion to the Holder by crediting the account of Holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system.
f. The holder of any Debentures shall be entitled to exercise its
conversion privilege with respect to the Debentures 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 Debentures.
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.
24
g. The Company will authorize the Transfer Agent to give information
relating to the Company directly to the Lender or the Lender's representatives
upon the request of the Lender 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 Lender in connection with a Notice of Conversion or
a Notice of Exercise, or (ii) the number of outstanding shares of Common Stock
of all shareholders as of a current or other specified date. At the request of
the Lender, the Company will provide the Lender with a copy of the authorization
so given to the Transfer Agent.
6. CLOSING DATES.
a. The Initial 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. (i) Subject to the provisions of subparagraph (iv) of this Section
6(b), the Additional Closing Date shall be the date specified in the Additional
Closing Date Notice (as defined below).
(ii) Subject to the other provisions of this Section 6(b), the
term "Additional Closing Date Notice" means a written notice given by the
Company to the Lender and to the Escrow Agent by fax transmission or hand
delivery no later than one (1) business day after the Company submits the
Effectiveness Request (as defined below; a copy of the Effectiveness Request
shall be attached to the Additional Closing Date Notice).
(iii) It also shall be a condition to the giving of an
Additional Closing Date Notice that the representations and warranties of the
Company contained in Section 3 hereof shall be true and correct in all material
respects and there shall have been no Material Adverse Effect from the Initial
Closing Date through and including the date the Company gives the Additional
Closing Date Notice to the Lender (and the Company's issuance of the Additional
Closing Date Notice shall constitute the Company's making each such
representation and warranty as of such date).
(iv) The Company also shall give written notice (an
"Effectiveness Notice") to the Lender and the Escrow Agent both (x) by fax
transmission or hand delivery and (y) by telephone communication of the actual
Effective Date declared by the SEC no later than noon on the first business day
after such Effective Date; provided, however, that an Effectiveness Notice may
be given only if the Effective Date is on or before the date (the "Latest
Effective Date") which is one hundred eighty (180) days after the Initial
Closing Date. The fifth (5th) day after the actual Effective Date, which may be
later than the date requested in the Effectiveness Request, shall be the
Additional Closing Date.
(v) The Company shall execute the Certificates for the
Additional Debentures and the Additional Warrants and deliver them to the Escrow
Agent at least one Trading Day prior to the Additional Closing Date. The "Issue
Date" identified in such Additional Debentures and the Expiration Date
identified in such Additional Warrants shall be left blank and the Company will
authorize the Escrow Agent, upon their release to the Lender, to fill in (x) the
date of the Additional Closing Date as the Issue Date in such Additional
Debentures and (y) the Expiration Date (as contemplated by Annex V hereto) in
the Additional Warrants.
25
(vi) The term "Effectiveness Request" means the Company's
written request to the SEC that the SEC declare the Registration Statement
effective on a specified date; provided, however, that the Effectiveness Request
shall be given only after the SEC has advised the Company informally, in writing
or otherwise that it will respond favorably to such request.
(vii) Except as provided in this Section 6(b), the closing for
the Additional Debentures and the Additional Warrants shall be conducted upon
the same terms and conditions as those applicable to the Initial Debentures and
Initial Warrants.
(viii) The Company hereby covenants and agrees that the
Company will issue each of the Additional Closing Date Notice and the
Effectiveness Notice to the Lender and the Escrow Agent on a timely basis.
(ix) If the Effective Date does not occur by the close of
business (Eastern time) on the Latest Effective Date, the obligations of the
Lenders to purchase the Additional Debentures and the Additional Warrants and
the obligations of the Company to issue the Additional Debentures and the
Additional Warrants shall automatically terminate (an "Additional Closing Date
Termination"). Such Additional Closing Date Termination shall not affect the
obligations of the Company or the Lender under any of the other Transaction
Agreements, including, without limitation, the Registration Rights Agreement,
except that the Transaction Agreements shall be deemed to refer only to the
Initial Debentures and the Initial Warrants and the transactions relating
thereto.
c. Each closing of the purchase and issuance of Debentures and Warrants
shall occur on the relevant 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.
d. (i) 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 relevant Closing Date
upon satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
(ii) Upon the occurrence of an Additional Closing Date
Termination, the Escrow Agent shall return the Escrow Property, if any, relating
to the Additional Closing Date to the party which deposited such Escrow Property
in escrow.
26
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell the
relevant Securities to the Lender pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Lender on or
before the Initial Closing Date;
b. Delivery by the Lender to the Escrow Agent by the Initial Closing
Date of good funds as payment in full of an amount equal to the Aggregate
Purchase Price in accordance with this Agreement;
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
relevant Securities on the relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before the Closing Date;
b. Delivery by the Company to the Escrow Agent of the relevant
Certificates in accordance with this Agreement;
c. Delivery by the Company to the Escrow Agent of written confirmation
that there are no changes to the Disclosure Letter, a copy of which shall be
attached to such confirmation;
d. Delivery by the Company to the 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;
27
e. 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;
f. 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;
g. On such Closing Date, the Lender shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Lender, substantially to the effect set forth in
ANNEX III attached hereto;
h. 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
i. 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
that, in the reasonable judgment of the Lender, makes it impracticable or
inadvisable to purchase the Securities;
j. With respect to the Additional Closing Date,
(i) an Additional Closing Date Notice and an Effectiveness Notice shall
have been duly and timely given as provided in the relevant provisions of
Section 6(b);
(ii) the Registration Statement to cover all Registrable Securities as
contemplated by the Registration Rights Agreement shall have been declared
effective by the SEC five (5) days prior to such Additional Closing Date, but in
no event later than the close of business (Eastern time) on the Latest Effective
Date; and
(iii) the representations and warranties of the Company contained in
Section 3 hereof shall be true and correct in all material respects as if made
on the Additional Closing Date (rather than the Initial Closing Date) and there
shall have been no Material Adverse Effect from the Initial Closing Date through
and including the Additional Closing Date (and an executive officer of the
Company shall issue an Officer's Certificate substantially in the form of ANNEX
IX hereto with respect thereto; provided, however, that such Officer's
Certificate may update certain information, such as the number of shares of the
Company's stock outstanding, included in Section 3).
28
9. INDEMNIFICATION.
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, 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 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 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. In addition, the Company will reimburse the Lender for reasonable
internal and overhead costs for the time of any officers or employees of the
Lender devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or otherwise with respect
to inquiries, hearing, trials, and other proceedings relating to the subject
matter of this Agreement or the other Transaction Agreements. 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.
29
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
30
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.
31
(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 it the dispute is not resolved within thirty (30) days after the
Claim Notice, the Indemnifying Party shall be enlisted 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 enlisted to institute
such legal action as it deems appropriate.
32
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. 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. 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 enforcement of
or protection of any of its rights under any of the Transaction Agreements.
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.
33
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.
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 seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or (c) the third business 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
34
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 Purchase Price, and shall inure to the benefit of the Lender and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
35
IN WITNESS WHEREOF, this Agreement has been duly executed by the Lender
(if an entity, by one of its officers thereunto duly authorized) as of the date
set forth below.
AGGREGATE PURCHASE PRICE: $________________________
SIGNATURES FOR LENDERS
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this ______________ day of
_______________________, 2003.
____________________________________ ____________________________________
Address Printed Name of Lender
____________________________________
By:_________________________________
Telecopier No. _____________________ (Signature of Authorized Person)
____________________________________
____________________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
NEW VISUAL CORPORATION
By: __________________________
Title: __________________________
Date: ______________, 2003
