SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of December
______, 1996, is entered into by and between __________________ acting in its
capacity as agent for certain non-U.S. Persons ("Purchaser") and Exsorbet
Industries, Inc., an Idaho corporation (the "Company"). This is the Agreement
referred to as the Purchase Agreement in the Registration Rights Agreement (as
defined in Section 6(b) hereof).
The parties hereto agree as follows:
1. Purchase and Sale of Convertible Debenture. Upon the basis of the
representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Company covenants and agrees to sell to the
Purchaser on the Closing Date, at a purchase price of $______________ (the
"Purchase Price"), a Convertible Debenture in registered form in a principal
amount of $__________________ and substantially in the form of Exhibit A hereto
(the "Debenture"), such Debenture convertible into a number of Common Stock of
the Company Issued at Conversion determined pursuant to Article 3 of the
Debenture, according to the terms and conditions set forth in the Debenture and
upon the basis of the representations and warranties, and subject to the terms
and conditions set forth in this Agreement, the Purchaser covenants and agrees
to purchase from the Company on the Closing Date the Debenture at the Purchase
Price. All capitalized terms not otherwise defined herein shall have the
meanings attributed to them in the Debenture.
2. Closing. The closing of the purchase and sale of the Debenture pursuant
to Section 1 hereof shall take place on December _____, 1996 at the offices of
Morse, Zelnick, Rose & Lander LLP located at 000 Xxxx Xxxxxx, Xxxxx 000, Xxx
Xxxx, Xxx Xxxx 00000 or at such other date, time and place as the Purchaser and
the Company may agree upon in writing (such time and date for the closing, the
"Closing Date"). The duly executed Debenture to be purchased by the Purchaser
shall be delivered by, or on behalf of, the Company at the closing against
payment of the Purchase Price therefor in immediately available funds by, or on
behalf of, the Purchaser to the attorney trust account of Morse, Zelnick, Rose &
Lander, LLP, (the "Escrow Agent") (Chase Manhattan Bank, Account No. 967086639,
ABA Routing Number 000000000). The Escrow Agent shall receive from the Purchaser
and the Company written instructions of the Purchaser and the Company in
substantially the form of Exhibit A hereto (the Closing Instructions),
instructing the Escrow Agent with respect the closing and settlement procedures.
Commencing on the second Business Day after delivery to the Escrow Agent of the
Purchase Price, the Purchaser, if the Company is not ready, willing and able to
consummate the transaction in accordance with the terms of the Closing
Instructions, may terminate the proposed transaction by notice to the Company
and the Escrow Agent, whereupon
the Escrow Agent shall redeliver the Purchase Price to the Purchaser as soon as
practicable in accordance with the written instructions of the Purchaser.
3. Representations. Warranties and Covenants of the Purchaser. The
Purchaser understands, and represents and warrants to, and agrees with, the
Company, that:
(a) The Debenture and the Common Stock of the Company Issued at
Conversion have not been and, unless registered under the Securities Act of
1933, as amended (the "Securities Act"), in accordance with the Registration
Rights Agreement (as defined in Section 6(b)), will not be registered under the
Securities Act, or any other applicable securities law, and, accordingly, may
not be offered, sold, transferred, pledged, hypothecated or otherwise disposed
of ("Transferred") unless registered under the Securities Act or Transferred in
a transaction exempt from registration under the Securities Act and any other
applicable securities law;
(b) The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act (an "Accredited Investor"), and is
acquiring or will acquire the Debenture and the Common Stock of the Company
Issued at Conversion for its own account. The Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Debenture and the Common Stock of
the Company Issued at Conversion. The Purchaser is aware that it may be required
to bear the economic risk of an investment in the Debenture for an indefinite
period, and it is able to bear such risk for an indefinite period;
(c) The Purchaser is acquiring or will acquire the Debenture and the
Common Stock of the Company Issued at Conversion for its own account for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof. The Purchaser agrees to offer, sell or otherwise
transfer the Debenture and the Common Stock of the Company Issued at Conversion
only (i) in accordance with the terms of this Agreement and the Debenture, as
applicable, and (ii) pursuant to registration under the Securities Act or an
exemption from registration under the Securities Act and any other applicable
securities law;
(d) The Purchaser acknowledges that the Company and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations
and agreements and further agrees that if any of the acknowledgments,
representations and agreements deemed to have been made by the Purchaser by its
acquisition of the Debenture and the Common Stock of the Company Issued at
Conversion are no longer accurate, it shall promptly notify the Company; and
(e) The Company has furnished or made available to the Purchaser a
full and complete set of its most recent definitive proxy statement in
connection with its annual
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meeting of stockholders, its Annual Report on Form 10-K/A for its most recently
completed fiscal year, its Form 10-Q or 10-Q/A for each of its fiscal quarters
since the end of its most recently completed fiscal year and any Form 8-K's
filed during its current fiscal year (collectively, the "SEC Documents"), which
the Company has filed pursuant to the Securities Exchange Act of 1934, as
amended.
4. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) The Company has been duly organized and is validly existing as a
corporation under the laws of Idaho.
(b) This Agreement and the Registration Rights Agreement (as defined
in Section 6(b)) have been duly authorized, executed and delivered by the
Company and constitute valid and binding agreements, enforceable in accordance
with their respective terms, and the Company has full corporate power and
authority necessary to enter into such agreements and to perform its obligations
thereunder.
(c) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its affiliates or any Subsidiary is required for execution of this
Agreement or the Registration Rights Agreement (as defined in Section 6(b)) and
the performance of its obligations under such agreements, including, without
limitation, the issuance and sale of the Debenture and the Common Stock of the
Company Issued at Conversion (except for the registration of the Common Stock of
the Company Issued at Conversion under the Securities Act pursuant to the
Registration Rights Agreement as defined in Section 6(b)).
(d) Neither the sale of the Debenture pursuant to this Agreement, nor
the performance of its obligations under this Agreement, the Debenture or the
Registration Rights Agreement by the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event that with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
of incorporation or by-laws of the Company
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or any Subsidiaries, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company or any Subsidiaries of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any Subsidiaries or over the properties or assets of the Company or
any Subsidiaries, (C) the terms of any bond, debenture, Debenture or any other
evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company or any Subsidiary is a party, by which the Company or any Subsidiary is
bound, or to which any of the properties of the Company or any Subsidiary is
subject, or (D) the terms of any "lockup" or similar provision of any
underwriting or similar agreement to which the Company or any Subsidiary is a
party; or
(ii) result in the creation or imposition of any lien, claim or
other encumbrance upon any of the assets of the Company or any Subsidiary.
(e) The Debenture, when issued and delivered pursuant to this
Agreement, will have been duly authorized, executed, issued and delivered and
will constitute a legal, valid, binding and enforceable obligation of the
Company.
(f) The Common Stock of the Company Issued at Conversion, when issued,
(i) will be free and clear of any security interests, liens, claims or other
encumbrances, (ii) will be duly and validly authorized and issued, (iii) will be
fully paid and nonassessable, (iv) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company, and (v) will not subject the holders thereof to
personal liability by reason of being such holders.
(g) There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company
or any Subsidiaries or any of its affiliates that would materially affect the
results of operations of the Company or any Subsidiaries or the execution by the
Company or any Subsidiaries of, or the performance by the Company or any
Subsidiaries of its obligations under, this Agreement, the Debenture or the
Registration Rights Agreement.
(h) The Company, any person representing the Company, and, to the best
knowledge of the Company, any other person selling or offering to sell the
Debenture or the Common Stock of the Company Issued at Conversion in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the Debenture or
the Common Stock of the Company Issued at Conversion that contained any untrue
statement of a material fact or omitted to state
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any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
i) Except as disclosed to the Purchaser in writing, the Company is not
in possession of any material non-public information that, if publicly
disclosed, would, or could reasonably be expected to, have an effect on the
price of the Company's common stock, par value $.001 per share (the "Common
Stock"), which is listed for trading on the National Association of Securities
Dealers Automated Quotations Small Capitalization system ("NASDAQ").
a) (j) Assuming the accuracy of, and compliance with, the representations,
warranties and covenants of the Purchaser in this Agreement, the sale of the
Debenture pursuant to this Agreement has been made in accordance with the
provisions and requirements of Sections 4(2) under the Securities Act ("Section
4(2)") and any applicable state law, and the Common Stock of the Company Issued
at Conversion shall comply with the provisions and requirements of Section
3(a)(9) under the Securities Act ("Section 3(a)(9)") and any applicable state
law.
(k) Intentionally omitted.
(l) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Idaho and is duly qualified as a
foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the Company and its Subsidiaries taken
as a whole. The Company has registered its common stock pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and trades on the Nasdaq Small Cap Market. The Company
has filed all material required to be filed pursuant to all reporting
obligations under either Section 13(a) or 15(d) of the Exchange Act for at least
twelve (12) months immediately preceding the offer or sale of the Debentures,
and has received no notice, either oral or written, with respect to its
continued eligibility for such listing. The Company has timely made all filings
required under the Securities Exchange Act during the twelve month period
preceding the date hereof and is eligible to use Form S-3 to register the Common
Stock Issued at Conversion.
5
(m) The Company undertakes and agrees to make all necessary filings in
connection with the sale of the Debentures as required by United States laws and
regulations or any domestic securities exchange or trading market.
(n) Since December 31, 1995, there has been no material adverse
development in the assets, liabilities, business properties, operations,
financial condition or results of operations of the Company and its
Subsidiaries, except as disclosed in the filings of the Company with the SEC.
(o) None of the SEC filings since January 1, 1995 contained, at the
time they were filed, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statement therein in light of the circumstances under which they were made not
misleading. The Company has since January 1, 1995 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
(p) There is no fact known to the Company or any Subsidiaries (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser that (i) could reasonably be expected
to have a material adverse effect on the condition (financial or otherwise) or
in the earnings, business affairs, business prospects, properties or assets of
the Company or any Subsidiaries, or (ii) could reasonably be expected to
materially and adversely affect the ability of the Company or any Subsidiaries
to perform its obligations pursuant to this Agreement.
5. Covenants of the Company. The Company covenants and agrees with the
Purchaser:
(a) to comply with all requirements of Section 4(2) with respect to
the sale of the Debenture and the Common Stock of the Company Issued at
Conversion including but not limited to the filing of a Form D with the
Securities and Exchange Commission;
(b) to notify the Purchaser promptly if at any time during the period
beginning on the date of this Agreement and ending on the Closing Date (i) any
event shall have occurred as a result of which any communication made by the
Company, any person representing the Company, or, to the best knowledge of the
Company, by any other person in connection with the transactions contemplated by
this Agreement would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
(ii) there is any public disclosure of material information regarding the
Company or its financial condition or results of operation;
6
(c) to cause the Common Stock of the Company Issued at Conversion to
be, upon delivery, fully paid, nonassessable, free of preemptive rights and free
from all taxes, liens, charges, security interests or other encumbrances; and
(d) have at all times authorized and reserved for issuance, free from
preemptive rights, a sufficient number of shares of Common Stock to yield a
number of Common Stock of the Company Issued at Conversion sufficient to satisfy
the conversion rights of the Purchaser pursuant to the terms and conditions of
the Debenture.
6. Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the performance by the Company of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct in all
material respects as of the date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of the Closing Date.
(b) The Company and the Purchaser shall have entered into a
Registration Rights Agreement (the "Registration Rights Agreement") in a form
satisfactory to the Purchaser.
(c) The Company will provide an opinion or opinions of counsel,
running to the purchasers, confirming in substance, the representations and
warranties set out in paragraphs (a), (b), (c), (d), (e), (f), (g), (j) and (l)
of Section 4.
(d) None of the following shall have occurred: (i) any general
suspension of trading in, or limitation on prices listed for, the Common Stock
on the NASDAQ, (ii) a declaration of a banking moratorium or any suspension of
payments in respect to banks in the United States, (iii) a commencement of a
war, armed hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation by federal or state
authorities on the extension of credit by lending institutions that materially
and adversely affects the Purchaser, or (v) in the case of any of the foregoing
existing at the date of this Agreement, a material acceleration or worsening
thereof.
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7. Conditions Precedent to the Company's Obligations. The obligations of
the Company hereunder are subject to the performance by the Purchaser of its
obligations hereunder and to the satisfaction of the condition precedent that
the representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct in all material
respects as of the date hereof and at the Closing Date, with the same force and
effect as if they had been made on and as of the Closing Date.
8. Transfer of Common Stock of the Company Issued at Conversion.
(a) Securities Act Legend. Each certificate evidencing the Debenture,
the Common Stock of the Company Issued at Conversion, and any certificates
issued upon transfer or exchange of the Debenture or the Common Stock of the
Company Issued at Conversion shall be stamped or imprinted with a legend
substantially as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE; AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM,
THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
(b) Securities Act Compliance. Each holder (a "Holder") of a certificate
evidencing the Debenture or the Common Stock of the Company Issued at Conversion
which bears the restrictive legend set forth in Section 8(a) above (the
"Restricted Securities"), and who proposes to Transfer (as defined in Section
3(a) of this Agreement) any Restricted Securities, shall give written notice to
the Company of such Holder's intention to effect such Transfer. Each such notice
shall describe the manner and circumstances of the proposed sale or other
disposition in sufficient detail and may be accompanied by an opinion of legal
counsel to the Holder. Promptly upon receipt of such notice, the Company shall
present a copy thereof (together with any accompanying opinion of legal counsel
to the Holder) to its legal counsel, and the following provisions shall apply:
(i) If, in the opinion of legal counsel to such Holder,
satisfactory in form and substance to the Company and its legal counsel, or if
such notice was not accompanied by an opinion of legal counsel to the Holder,
then, if, in the opinion of legal counsel to the Company, the proposed sale or
other disposition may be effected without registering the Restricted Securities
involved under the Securities Act or under state securities laws, such Holder
shall be entitled to Transfer such Restricted Securities in accordance with the
terms of the notice delivered to the Company. The Company will advise the
Holder, within five (5) business days after submission of such notice, whether
such Holder is entitled to so Transfer
8
the Restricted Securities. If the Holder is entitled to so Transfer, he shall
submit the stock certificate or certificates evidencing the Restricted
Securities to be Transferred to the Company in proper form for Transfer and
accompanied by appropriate instruments of Transfer. Restricted Securities thus
Transferred (and each of the certificates evidencing any untransferred balance
of the Common Stock of the Company Issued at Conversion not so transferred)
shall bear the restrictive legend set forth in Section 8(a), unless, in the
opinion of both such legal counsel (or legal counsel to the Company if the
Holder did not present an opinion of its legal counsel), such legend is not
required by the applicable provisions of the Securities Act or state securities
laws; and
(ii) If in the reasonable opinion of either of such legal counsel
(or legal counsel to the Company if the Holder did not present an opinion of its
legal counsel), the proposed Transfer cannot be effected without registering the
Common Stock of the Company Issued at Conversion involved under the Securities
Act or state securities laws, such Holder shall not offer to Transfer or
Transfer such Restricted Securities unless and until such Restricted Securities
have been registered under the Securities Act or state securities laws for such
purpose or an exemption from such registration becomes available pursuant to
Section 8(b)(i) above. The Company has obligated itself to register the Common
Stock of the Company Issued at Conversion pursuant to the terms of the
Registration Rights Agreement, a copy of which is attached hereto and made a
part hereof.
9. Fees and Expenses. Each of the Purchaser and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder,
including, but not limited to, the fees, expenses and disbursements of such
party's counsel.
10. Survival of the Representations. Warranties, etc. The respective
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Company and the Purchaser, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of any payment for the Debenture and
the Common Stock of the Company Issued at Conversion.
9
11. Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given if delivered personally
or by facsimile transmission, and confirmed, or mailed postage prepaid to the
parties at the following addresses or facsimile numbers:
If to the Purchaser, to:
______________________________
______________________________
______________________________
Telecopy: ____________________
with a copy to:
______________________________
______________________________
______________________________
Telecopy: ____________________
If to the Company, to:
Exsorbet Industries, Inc.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxx. 00000
Attention: President
Telecopy: (000) 000-0000
with a copy to:
Exsorbet Industries, Inc.
0000 Xxxxx Xxxxxxx Xxxx, Xxxxx 000
Xxxx Xxxxx, XX 00000
Attention: General Counsel
Telecopy: (000) 000-0000
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given
10
upon receipt, and (iii) if delivered by mail in the manner described above to
the address as provided in this Section, be deemed given upon receipt (in each
case regardless of whether such notice, request or other communication is
received by any other Person to whom a copy of such notice is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto.
12. Third Party Beneficiary. Any permitted transferee of any part of the
principal amount of the Debenture or the Common Stock of the Company Issued at
Conversion shall be a third party beneficiary of the Company's obligations under
this Agreement, the Debenture and the Registration Rights Agreement. Such person
shall have all the rights of a third party beneficiary with respect to the
enforcement against the Company of any provision of this Agreement, the
Debenture and the Registration Rights Agreement.
13. Non-delivery of the Conversion Shares. If, within 10 Business Days of
the date on which the Purchaser requests conversion of any of the Convertible
Debenture, the Company shall fail to (i) issue the Common Stock of the Company
Issued at Conversion and (ii) deliver to the Purchaser certificate representing
the Common Stock of the Company Issued at Conversion for any reason other than
failure by the Purchaser to comply with its obligations hereunder, then the
company shall:
a. hold the Purchaser harmless against any loss, claim or damage
arising from or as a result of such failure by the Company (including, without
limitation, any such loss, claim or damage resulting from an obligation to
resell the Common Stock of the Company Issued at Conversion); and
b. reimburse the Purchaser for all of its out-of-pocket expenses,
including fees and disbursements of its counsel, incurred by the Purchaser in
connection with this Agreement and the transactions contemplated herein;
provided however, that the Company shall then be under no further liability to
the Purchaser except as provided in this Section 13 and Section 14 hereof.
14. Indemnification. a. The Company agrees to indemnify the Purchaser and
its officers, directors, employees, agents and affiliates in respect of, and
hold each of them
11
harmless from and against, any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment)
("Losses") suffered, incurred or sustained by any of them or to which any of
them becomes subject, 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 the Company contained in this
Agreement, as such expenses are incurred, unless such Loss results primarily
from the Purchaser's gross negligence, recklessness or bad faith in performing
the obligations which are the subject of this Agreement.
b. The Purchaser agrees to indemnify the Company and its officers,
directors, employees, agents and affiliates in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, 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 Purchaser
contained in this Agreement, as such expenses are incurred, unless such Loss
results primarily from the Company's gross negligence, recklessness or bad faith
in performing the obligations which are the subject of this Agreement.
15. Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 14
will be asserted and resolved as follows:
a. In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 14 (an Indemnified
Party) might seek indemnity under Section 14 is asserted against or sought to be
collected from such Indemnified Party by a person other than the Company, the
Purchaser or any affiliate of the Company or the Purchaser (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 Section 14 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 will 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 irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by an Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the Dispute Period) whether
the
12
Indemnifying Party disputes its liability to the Indemnified Party under Section
14 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) 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 Section
15(a), then the Indemnifying Party will 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 will 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 will not be indemnified in
full pursuant to Section 14). The Indemnifying Party will 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 may, at
the sole cost and expense of the Indemnified Party, at any time prior to the
Indemnified Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleading or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to 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 clause (i), and except as provided in the preceding sentence,
the Indemnified Party will 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 Section 14 with respect to
such Third Party Claim.
(ii) 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
13
pursuant to Section 15(a), 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 will 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 will 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 clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes 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 clause (iii) below,
the Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party will 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 clause (ii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim under Section 14 or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party with respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 14 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by arbitration in
accordance with paragraph (c) of Section 15.
b. In the event any Indemnified Party should have a claim under
Section 14 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 14 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
14
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 an 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 described in
such Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim described in
such Indemnity Notice, the Loss in the amount specified in the Indemnity Notice
will be conclusively deemed a liability of the Indemnifying Party under Section
14 and the Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand. If the Indemnifying Party has timely disputed its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the Resolution Period, such dispute
shall be resolved by arbitration in accordance with paragraph (c) of this
Section 15.
c. Any dispute submitted to arbitration pursuant to this Section 15
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter sometimes called the
"Board of Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one (1) member and the
third member shall be selected by mutual agreement of the other members, or if
the other members fail to reach agreement on a third member within twenty (20)
days after their selection, such third member shall thereafter be selected by
the American Arbitration Association upon application made to it for such
purpose by the Indemnified Party. The Board or Arbitration shall meet in New
York, New York or such other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the Indemnifying Party is
required to pay to the Indemnified Party in respect of a claim filed by the
Indemnified Party. In connection with rendering its decision, the Board of
Arbitration shall adopt and follow such rules and procedures as a majority of
the members of the Board of Arbitration deems necessary or appropriate. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to the Indemnified Party and the Indemnifying Party. Any decision made
by the Board of Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final,
15
binding and conclusive on the Indemnified Party and the Indemnifying Party and
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. Each party to any arbitration shall bear
its own expense in relation thereto, including but not limited to such party's
attorneys fees, if any, and the expenses and fees of the Board of Arbitration
shall be divided between the Indemnifying Party and the Indemnified Party in the
same proportion as the portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to the portion of such
claim determined not to be so payable.
16. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and permitted assigns and, with
respect to Sections 14 and 15 hereof, the officers, directors and controlling
persons thereof and each person under common control therewith, and no other
person shall have any right or obligation hereunder.
(c) This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without giving effect to conflicts of
laws principles). With respect to any suit, action or proceedings relating to
this Agreement, each of the Company and the Purchaser irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in the City of New
York and hereby waives to the fullest extent permitted by applicable law any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Subject to applicable law, the Company agrees that final
judgment against it in any legal action or proceeding arising out of or relating
to this Agreement or the Debenture shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided by
law.
(d) The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
(e) The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid, illegal or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect in
that jurisdiction only such clause or provision, or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
16
(f) This Agreement, including the schedules and exhibits hereto,
constitutes the sole and entire agreement of the parties with respect to the
subject matter hereof, which are expressly incorporated herein.
17. Time of Essence. Time shall be of the essence in this Agreement.
18. Escrow Agent. The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and its liability hereunder shall be limited to
liability for gross negligence, willful misconduct or bad faith on its part. The
Company and the Purchaser agree to save harmless, indemnify and defend the
Escrow Agent for, from and against any loss, damage, liability, judgment, cost
and expense whatsoever, by reason of, or on account of, any misrepresentation
made to it or its status or activities as Escrow Agent under this Agreement
except for any loss, damage, liability, judgment, cost or expense resulting from
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent.
It is understood and further agreed that the Escrow Agent shall:
(a) be under no duty to enforce payment of any subscription that is to
be paid to and held by it hereunder;
(b) promptly notify the Purchaser and the Company of any discrepancy
between the amounts set forth on any statement delivered by the Purchaser and/or
the Company and the sum or sums delivered to it therewith;
(c) be under no duty to accept funds, checks, drafts or instruments
for the payment of money from anyone other than the Company or the Purchaser, or
to give any receipt therefor except to the Company or the Purchaser, with a copy
in each case to the Company;
(d) be protected in acting upon any notice, request, certificate,
approval, consent or other paper reasonably believed by it to be genuine and to
be signed by the proper party or parties;
17
(e) be permitted to consult with counsel of its choice, and shall not
be liable for any action taken, suffered, or omitted by it in accordance with
the advice of such counsel; provided, however, that nothing in this subsection
(e), nor any action taken by the Escrow Agent, or suffered or omitted by it in
accordance with the advice of any counsel, shall relieve the Escrow Agent from
liability for any claims that are occasioned by its gross negligence, willful
misconduct, or bad faith;
(f) not be bound by any modification, amendment, termination,
cancellation, or rescission of this Agreement, unless the same shall be in
writing and signed by it;
(g) be entitled to refrain from taking any action other than to keep
all property held in escrow if it (i) shall be uncertain concerning its duties
or rights hereunder, or (ii) shall have received claims or demands from any
party, or (iii) shall have received instructions from the Purchaser and/or the
Company that, in the Escrow Agent's opinion, are in conflict with any of the
provisions of this Agreement, until it shall have received a final judgment by a
court of competent jurisdiction;
(h) have no liability for following the instructions herein or
expressly provided for herein, or the joint written instructions given by the
Purchaser and the Company; and
(i) have the right, at any time, to resign hereunder by giving written
notice of its resignation to all other parties hereto at least three (3) days
prior to the date specified for such resignation to take effect, and upon the
effective date of such resignation all cash and other payments and all other
property then held by the Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by the other parties executing this
Agreement, whereupon the Escrow Agent's obligations hereunder shall cease and
terminate. If no such person has been designated by such date, all obligations
of the Escrow Agent hereunder shall, nevertheless, cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely all
property then held by it and to deliver the same to a person designated by the
other parties executing this Agreement or in accordance with the directions of a
final order or judgment of a court of competent jurisdiction.
16. Lock Out Period. For a period of six months following the date of
closing of this Agreement (the Lock Out Period), the Company will not, without
the consent of all the Purchasers, enter into any other agreements for the
issuance of any security, for which cash consideration is received by the
Company, that is convertible into common stock of the company. In the event that
registration of the Company's Common Stock pursuant to the Registration Rights
Agreement between the parties is not effective until more than 90 days after
18
the closing of this Agreement, the Lock Out Period shall continue through the
expiration of 90 days after the effective date of such registration.
17. Delivery of Stock. The Company will permit the Purchaser to exercise
its right to convert the Debenture by telecopying an executed and completed
Notice of Conversion to the Company and delivering within three business days
thereafter, the original Notice of Conversion and Debenture by express courier.
Each date on which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will transmit the certificates representing the shares of
Common Stock of the Company Issued at Conversion and the newly issued Debenture
representing the amount of the Debenture which remains unconverted to the
Purchaser via express courier within three business days after receipt by the
Company of the original Notice of Conversion and the Debenture.
18. Liquidated Damages for Failure to Deliver. The Company understands that
a delay beyond the deadline for delivery, specified in paragraph 17, could
result in economic loss to the Purchaser. As compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser for the late
issuance of shares issuable at conversion in accordance with the following
schedule (where No. Business Days Late is defined as the number of business days
beyond three business days from Delivery Date):
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
1 $ 50.00
2 $100.00
3 $150.00
4 $200.00
5 $250.00
6 $300.00
7 $350.00
8 $400.00
9 $450.00
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10 $500.00
>10 $500.00 + $100.00 for Each Business Day
Beyond 10 Days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit a Purchaser's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Purchaser. Furthermore, in addition to any other remedies which may
be available to the Purchaser, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within five business
days after the Delivery Date, the Purchaser 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 Purchaser shall each be restored to their
respective positions immediately prior to such Notice of Conversion.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer(s) of each party hereto as of the date first above
written.
PURCHASER
By: ______________________________
Title: ____________________________
EXSORBET INDUSTRIES, INC.
By: ______________________________
Title: ____________________________
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EXHIBIT A
CONVERTIBLE DEBENTURE
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