EXHIBIT 4.1
UNIT SUBSCRIPTION AND SECURITY AGREEMENT
THIS UNIT SUBSCRIPTION AND SECURITY AGREEMENT (this "AGREEMENT") is
entered into as of September 3, 2002 by and among On2 Technologies, Inc., a
Delaware corporation (the "COMPANY"), and Abanat Limited, a British Virgin
Islands corporation ("ABANAT"), Xxxxx Xxxxxxx, an individual ("Xxxxxxx"),
Xxxxxx Bears Sr., an individual ("Bears Sr."), Xxxxxx Bears, Jr., an
individual ("Bears Jr."), Xxxxxxx X. Xxxxx, an individual ("Xxxxx") and Xxxx
X. Xxxxxx, an individual ("Xxxxxx") (collectively, Abanat, Xxxxxxx, Bears
Sr., Bears Jr., Xxxxx, Xxxxxx shall be referred to as the "INVESTORS" and
individually each of the Investors shall be referred to as an "INVESTOR").
Certain capitalized terms used in this Agreement without definition shall
have the meanings given them in Section 9 hereof.
In consideration of the mutual promises, representations, warranties and
covenants set forth in this Agreement, the parties to this Agreement agree as
follows:
1. Purchase and Sale of Units.
(a) The Company has duly authorized for sale, issue and delivery to
the Investors of up to an aggregate of $650,000 principal amount of Series A
Secured Convertible Debentures due 2006 (the "DEBENTURES"), substantially in the
form attached hereto as Exhibit B and convertible as provided therein into
shares of the Company's Common Stock, $0.01 par value per share (the "COMMON
STOCK"). The Company has further authorized for sale, issue and delivery to the
Investors warrants (the "WARRANTS") to acquire Common Stock during the period
ending five years after the date of issuance thereof. The form of the Warrant is
attached to this Agreement as Exhibit C.
(b) Subject to the terms of this Agreement, the Investors agree to
purchase, and the Company agrees to sell to the Investors, an aggregate of 65
Units. Each unit (a "Unit") consists of: (i) $10,000 principal amount of
Debentures and (ii) one Warrant to purchase 20% warrant coverage shares of
Common Stock (rounded to the nearest whole share). The aggregate purchase price
to be paid by the Investors for the Units shall be $650,000 ("AGGREGATE
COMMITMENT").
(c) On the date hereof (the "CLOSING DATE"), the Company shall
deliver to the Investors the number of Units (consisting of Debentures and
Warrants) set forth next to each Investor's name on Exhibit A hereto, in all
cases against delivery to the Escrow Agent (as defined below) by the Investors
by wire transfers of immediately available funds of the purchase price of the
Units being purchased by the Investors of the amount set forth next to each
Investor's name on Exhibit A.
2. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants to, and confirms the agreement with, the
Company, jointly and not severally as follows:
(a) Each Investor is acquiring the Debentures and the Warrants that
comprise the Units (the "SECURITIES") for its own account, not as nominee or
agent, for investment and not with a view to, or for resale in connection with,
any distribution or public offering thereof within
the meaning of the Securities Act of 1933, as amended (the "SECURITIES ACT"). By
executing this Agreement, each Investor further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any such person or to any third person, with
respect to the Securities.
(b) Each Investor understands that (i) the Securities have not been
registered under either the Securities Act or the securities laws of any state
of the United States by reason of specific exemptions therefrom, (ii) the
Securities must be held by the Investors indefinitely, and, therefore, the
Investors must bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act and the
securities laws of any applicable state or is exempt from such registrations;
(iii) each certificate that represents the Securities will be endorsed with
legends as required by the Investors' Rights Agreement; and (iv) the Company
will instruct any transfer agent not to register the transfer of any of the
Securities unless the conditions specified in the foregoing legend are
satisfied.
(c) Each Investor has been furnished with such materials and has
been given access to such information relating to the Company as such Investor
or the Investor's qualified representative has requested. Each Investor has been
afforded the opportunity to ask questions regarding the Company and the
Securities as it has found necessary to make an informed investment decision.
Each Investor has been solely responsible for its own due diligence
investigation of the Company and its business, for its own analysis of the
merits and risks of its investment made pursuant to this Agreement and for its
own analysis of the terms of its investment.
(d) Each Investor is in a financial position to hold the Securities
and is able to bear the economic risk and withstand a complete loss of the
Investor's investment in the Securities. Each Investor recognizes that the
Securities involve a high degree of risk. Each Investor understands and
acknowledges that there can be no assurance that the Company will be able to
meet its projected goals and that the Company will need significant additional
capital to be successful, which capital may not be available readily.
(e) Each Investor acknowledges hereby that it has been advised to
obtain and has obtained, to the extent such Investor deems necessary,
professional (including legal) advice with respect to the risks inherent in the
investment in the Units, the condition of the Company, the suitability of the
investment in the Units in light of such Investor's condition and investment
needs, and the terms and conditions of this Agreement and documents relating to
the investment in the Units. Each Investor, either alone or with the assistance
of such professional advisors, is a sophisticated Investor, is able to fend for
itself in the transaction contemplated by this Agreement, and has such knowledge
and experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of the prospective investment in the Units.
(f) The investment in the Units is suitable for each Investor based
upon that Investor's investment objectives and financial needs, and such
Investor has adequate net worth and means for providing for its current
financial needs and contingencies and has no need for liquidity of the
investment with respect to the Units. Each Investor's overall commitments to
investments that are illiquid or not readily marketable are not disproportionate
to the Investor's
- 2 -
net worth, and investment in the Units will not cause such overall commitment to
become excessive.
(g) Each Investor represents that the Debenture is being acquired
for investment and that it will not offer, sell or otherwise dispose of the
Debentures or the shares of Common Stock issuable upon conversion thereof except
pursuant to registration under the Securities Act or pursuant to an available
exemption from registration and under circumstances which will not result in a
violation of the Securities Act or any applicable state Blue Sky or foreign laws
or similar laws relating to the sale of securities. Each Investor further agrees
that it will not engage in hedging transactions with regard to the Debenture or
the shares of Common Stock issuable upon conversion thereof unless in compliance
with the Securities Act. Each Investor represents and agrees that neither it,
nor any of its affiliates, nor any person acting on its or their behalf has
engaged or will engage in any direct selling efforts with respect to the shares
of Common Stock.
(h) Each Investor also represents and agrees that it has not entered
and will not enter into any contractual arrangement with any distributor (as
that term is defined by Regulation S) with respect to the distribution of the
shares of Common Stock, except with the prior written consent of the Company.
Each Investor acknowledges that the Company is not obligated to take any action
that will permit the offer or sale of the shares of Common Stock or the
distribution of any offering memorandum or any other offering material relating
to the shares in any non-U.S. jurisdiction where action for that purpose is
required and the Company will have no responsibility with respect to the right
of any person to offer or sell shares or distribute any offering memorandum or
any other offering material relating to the shares in any non-U.S. jurisdiction.
Each Investor represents and agrees that it will obtain any consent, approval or
authorization required for it to offer or sell shares of Common Stock, or to
distribute any offering memorandum or any other offering material relating to
the shares, under the law or regulations of any jurisdiction where it proposes
to make offers or sales of shares, or to distribute any offering memorandum or
any other offering material relating to the shares.
(i) The execution, delivery, and performance by each Investor of
this Agreement and each other Transaction Document have been duly authorized by
all necessary actions of each Investor. Each Investor has duly and validly
executed and delivered this Agreement and each other Transaction Document, and
this Agreement and each other Transaction Document constitutes a valid, binding,
and enforceable obligation of each Investor in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(j) Accredited Investor. Each Investor is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
3. Representations and Warranties of the Company. Except as set forth on
the Schedule of Exceptions attached hereto as Schedule A, which has been
delivered to the Investors prior to the Investors's execution hereof, the
Company represents and warrants to the Investors as follows:
- 3 -
(a) Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
and as proposed to be conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which a failure to so qualify would have a
Material Adverse Effect. Each of the subsidiaries of the Company (the
"SUBSIDIARIES") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, and as proposed to be conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which a failure to so qualify would have a Material Adverse Effect on the
business condition of such subsidiary.
(b) Company Capital Structure and Ownership. The authorized capital
stock of the Company on the date hereof consists of 100,000,000 shares of Common
Stock of which 55,802,118 shares are issued and outstanding and 20,000,000
shares of preferred stock, par value $0.01 per share, of which 400,000 shares of
Series A Preferred Stock are issued and outstanding, 377,358 shares of Series
C-II Preferred Stock are issued and outstanding, 18,490,057 shares of Series
C-IV Preferred Stock are issued and outstanding, 4,099,678 shares of Series C-V
Preferred Stock are issued and outstanding and 3,571,429 share of Series C-VI
Preferred Stock are issued and outstanding. All outstanding shares of the Common
Stock are validly issued, fully paid, and nonassessable, are not subject to any
preemptive rights and were issued in compliance with applicable state and
federal laws regarding the issuance of securities. Except as set forth in the
Company's consolidated quarterly financial statements as of June 30, 2002 (the
"2000 FINANCIAL STATEMENTS"), including the notes thereto, and except as set
forth on the Schedule of Exceptions, there are no options, warrants, calls,
conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which the Company is a
party or by which the Company may be bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of the Company, or obligating the Company to grant, extend or
enter into any such option, warrant, call, conversion right, commitment,
agreement, contract, understanding, restriction, arrangement or right. The
Company does not have outstanding any bonds, debentures, notes or other
indebtedness, the holders of which have the right to vote (or convertible or
exercisable into securities having the right to vote) with holders of the Common
Stock on any matter. The Company has not received any notice from the Amex
questioning or threatening the continued inclusion of the Common Stock on such
market.
(c) Authority. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of the Transaction Documents and the consummation
of the transaction contemplated herein and therein, and for the authorization,
issuance and delivery of the Debentures and the Warrants have been taken or will
be taken prior to the Closing. This Agreement and the other Transaction
Documents are the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
other laws of general application affecting enforcement of creditors' rights
generally, rules of law governing specific performance and injunctive relief or
- 4 -
other equitable remedies. The execution, delivery and performance by the Company
of the Transaction Documents and compliance herewith and therewith and the sale
and issuance of the Debentures and the Warrants (a) will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under the Company's Certificate of
Incorporation or Bylaws, each as amended or any Federal, state or local statute,
rule, regulation or other law (collectively, "LAWS"); (b) do not and will not
(i) conflict with, contravene, result in any violation or breach of or default
under any material contract (with or without the giving of notice or the lapse
of time or both), (ii) create in any other person or entity a right or claim of
termination or amendment of any material contract, or (iii) require
modification, acceleration or cancellation of any security issued by such person
or entity in any material agreement, undertaking, contract, indenture, mortgage,
deed of trust or other instrument or arrangement (whether in writing or
otherwise) to which such person or entity or its property is bound, or any
amendment of any of the foregoing (collectively, "CONTRACTUAL OBLIGATIONS"); and
(c) do not and will not (other than pursuant to the Transaction Documents)
result in the creation of any mortgage, deed of trust, pledge, hypothecation,
assignment, lien (statutory or otherwise), charge, claim, restriction or
preference, security interest or preferential arrangement or any other
encumbrance (or obligation to create a lien) of any kind or nature
(collectively, "LIENS") against any property, asset or business of the Company
or the suspension, revocation, impairment, forfeiture or non renewal of any
material permit, license, authorization or approval applicable to the Company,
or its businesses or operations or any of its assets or properties. No
shareholder has any preemptive rights or rights of first refusal by reason of
issuance of the Units.
(d) SEC Matters. The Company has made available to the Investors a
true, correct, and complete copy of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2001, and its Quarterly Report on Form 10-QSB
for the quarters ended March 31, 2002 and June 30, 2002, as filed with SEC
(collectively, the "COMPANY SEC REPORTS"). As of their respective filing dates,
the Company SEC Reports (i) complied as to form in all material respects with
the requirements of the SEC and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made not misleading. The financial
statements (including the notes thereto) included in the Company SEC Reports
complied as to form in all material aspects with the published rules and
regulations of the SEC. Since June 16, 1999, the Company has filed all required
reports, schedules, forms, statements and other documents with the SEC as and
when any such documents were required to be filed and no Company SEC Reports
were filed after the filing deadline therefor (after giving effect to all
extensions) or otherwise in an untimely manner. The Company has not provided to
the Investors any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement.
(e) Authorization. The execution and delivery by the Company of this
Agreement and each other Transaction Document, the performance by the Company of
its obligations hereunder and thereunder, and the issuance to the Investors of
the Debentures, the Warrants and the shares of Common Stock underlying the
Debentures and the Warrants (the "UNDERLYING COMMON STOCK"), as herein provided,
have been duly authorized by all necessary corporate action of the Company. When
issued upon due conversion of the Debentures, the
- 5 -
shares of Underlying Common Stock into which the Debentures are convertible will
be validly authorized and, when issued upon the conversion of the Debentures,
will be fully paid and nonassessable. When issued upon due exercise of the
Warrants and upon payment of the exercise price thereunder as required by the
Warrants, the shares of Underlying Common Stock that underlie the Warrants will
be validly authorized, duly issued and fully paid and nonassessable shares of
the Company. To the Company's knowledge, all outstanding shares of capital stock
of the Company have been issued in compliance with all applicable federal and
state securities laws. To the Company's knowledge, other than the agreements set
forth in the Schedule of Exceptions, there are no voting trusts or agreements,
stockholders agreements, pledge agreements, buy-sell agreements or proxies
relating to any capital stock of the Company.
(f) Compliance with Laws. Neither the Company nor any of its
Subsidiaries has violated any Requirement of Law (as defined below), which
violation would reasonably be expected to have a Material Adverse Effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries, taken as a whole, and neither the
Company nor any of its Subsidiaries has received notice of any such violation.
"REQUIREMENT OF LAW" means, with respect to the Company or any Subsidiary, its
articles or certificate of incorporation, formation or organization, partnership
or operating agreements and bylaws or other organizational or governing
documents, and any law, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a court
or other Governmental Authority (as defined below), in each case applicable to
or binding upon the Company or any of its Subsidiaries or any of its or their
property or to which the Company or any Subsidiary or any of its or their
property is subject or pertaining to any or all the transactions contemplated or
referred to herein. "GOVERNMENTAL AUTHORITY" means the government of any country
where the Company conducts business or any state, county or parish, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
(g) Governmental Approvals; Consents. Other than as set forth on the
Schedule of Exceptions, except for filings required to be made with any
Governmental Authority or Person (as defined below) that governs the Investors,
the Company is not required to obtain any order, consent, approval or
authorization of, or make any declaration or filing with, any Governmental
Authority or other Person (as defined below) in connection with (i) the
negotiation, execution, delivery and performance of this Agreement or any of the
other Transaction Documents, (ii) the offer, issuance, sale and delivery to the
Investors of the Units, or (iii) the consummation of any of the transactions
contemplated by this Agreement or any of the Transaction Documents. "PERSON"
means an individual, a partnership, a corporation, a limited liability company,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
(h) Litigation. Except as disclosed in the Company SEC Reports or
the Schedule of Exceptions, there is no action, suit, claim, proceeding or
investigation pending or, to the Company's knowledge, threatened against or
affecting the Company or any of its Subsidiaries, at law or in equity, or before
or by any federal, state, municipal or other governmental department,
- 6 -
commission, board, bureau agency or instrumentality, domestic or foreign, which
could reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is in default with respect to any order,
writ, injunction, or decree known to or served upon the Company of any court or
of any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Except as
disclosed in the Company SEC Reports, there is no material action or suit by the
Company or any Subsidiary pending or threatened against others. The Company and
each of its Subsidiaries have all necessary permits, licenses and other
authorizations required to conduct their respective businesses as conducted and
as proposed to be conducted, except where the failure to obtain any such permit,
license or authorization could not reasonably be expected to have a Material
Adverse Effect. The Company has complied in all material respects with all laws,
rules and regulations (including, without limitation, laws relating to
employment, including wages, hours, equal opportunity, collective bargaining,
payment of social security and other taxes, and ERISA), and any orders,
injunctions and decrees applicable to it, except where such non-compliance could
not reasonably be expected to have a Material Adverse Effect.
(i) Tax Matters. The Company has filed all tax returns and reports,
federal, state, county and local, required to be filed by it, and these returns
and reports are true and correct in all material respects, and the Company has
paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation, all taxes which the Company is obligated to withhold from
amounts owing to creditors and third parties. The Company has withheld or
collected from each payment made to each of its employees, in all material
respects, the amount of all taxes, including, but not limited to, federal income
taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes required to be withheld or collected there from, and has paid the same to
the proper tax receiving officers or authorized depositories. No deficiency
assessment with respect to or proposed adjustment of the Company's federal,
state, county and local taxes is pending or, to the Company's knowledge
threatened. There is no tax lien, whether imposed by any federal, state, county
or local taxing authority, outstanding against the assets, properties or
business of the Company.
(j) Corporate Power. The Company has or will have at the Closing all
requisite corporate power and authority to execute and deliver this Agreement
and the Transaction Documents, sell and issue the Debentures and the Warrants
and to carry out and perform its obligations under the terms of the Transaction
Documents.
(k) Outstanding Debt. The Company has no outstanding indebtedness
for borrowed money and is not a guarantor or indemnitor or otherwise
contingently liable for any indebtedness for borrowed money (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
provide funds for payment, supply funds or otherwise invest in any debtor or
otherwise to insure any creditor against loss). There exists no material default
under the provisions of any instrument evidencing any such indebtedness or
otherwise or of any agreement relating thereto.
(l) Material Contracts and Other Commitments. The Company has
satisfied in full or provided for all of its liabilities and obligations under
each material contract requiring
- 7 -
performance prior to the date hereof in all material respects, and is not in
default under any of them, nor, to the actual knowledge of the Company, does any
condition exist that with notice or lapse of time or both would constitute such
a default. To the actual knowledge of the Company, no other party to any such
material contract is in default thereunder, nor does any condition exist that
with notice or lapse of time or both would constitute such a default. No
approval or consent of any person or entity is needed for all of the material
contracts to continue to be in full force and effect.
(m) Stockholders, Directors and Officers: Conflict of Interest. The
Company is not currently indebted to its officers or directors other than for
travel, and other similar expenses that are advanced and reimbursed in the
ordinary course of business. To the Company's knowledge, none of the officers or
directors or significant employees or consultants of the Company, or their
respective relatives, (a) owns, directly or indirectly, any interest in
(excepting less than 5% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any person or entity that is, or is engaged in business as, a
competitor, lessor, lessee, distributor, sales agent or customer of, or lender
to or borrower from, the Company; or (b) owns, directly or indirectly, in whole
or in part, any tangible or intangible property that the Company uses in the
conduct of business; or (c) has any cause of action or other claim whatsoever
against, or owes or has advanced any amount to, the Company, except for claims
in the ordinary course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof.
(n) Title to Properties; Liens and Encumbrances. The Company has
good and marketable title to its tangible properties and has good title to all
its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, security interest, conditional sale agreement, encumbrance or charge,
except (i) tax, materialmen's or like liens for obligations not yet due or
payable or being contested in good faith by appropriate proceedings, or (ii)
possible minor liens or encumbrances which do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise than in the
ordinary course of business of the Company.
(o) Franchises and Other Rights. The Company has all material
franchises, permits, and other similar authority necessary for the conduct of
its business. The Company has not received any notice of infringement upon or
conflict with the asserted rights of others and is not aware of any threats of
such a claim or assertion. Reasonable security measures have been taken by the
Company to protect the secrecy, confidentiality and value of the Company's
confidential, proprietary information. The Company owns or possesses adequate
licenses or other rights to use and license its customers the right to use (in
the manner and to the extent presently or proposed to be used or licensed) all
material patents, patent applications, trademarks, trademark applications,
service marks, service xxxx applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"INTELLECTUAL PROPERTY") currently or proposed to be used in its business,
except the possibility exists that other persons or entities may have developed
trade secrets or technical information similar or identical to those of the
Company or filed patent, trademark or copyright applications or registrations.
No claim is pending or, to the knowledge of the Company threatened, to the
- 8 -
effect that any such Intellectual Property owned or licensed by the Company, or
which the Company otherwise has the right to use, is invalid or unenforceable by
the Company. None of the Intellectual Property that the Company owns or purports
to own is subject to any outstanding judgment or contract restricting the use
thereof by the Company.
(p) Compliance With Other Instruments. The Company is not in
violation of any term of its Certificate of Incorporation or Bylaws nor any term
of any mortgage, indenture, contract, agreement, instrument, judgment, decree,
order, statute, rule or regulation to which the Company is subject and a
violation of which, in all cases, would have a Material Adverse Effect. The
Company is not in violation of, or in default under, any franchise, permit,
license, authorization or approval that is material to the Company.
(q) Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its material assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a Material Adverse Effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees.
(r) Environmental and Safety Laws. The Company is not in material
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation. The Company has not caused or allowed,
or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
material violation of any of the applicable Environmental Laws (as defined
below) in connection with the operation of its business or otherwise. For the
purposes of this Agreement, the term "ENVIRONMENTAL LAWS" shall mean any
federal, state or local law or ordinance or regulation pertaining to the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601, et seq., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. For purposes of
this Agreement, the term "HAZARDOUS SUBSTANCES" shall include oil and petroleum
products, asbestos, polychlorinated biphenyls, urea formaldehyde and any other
materials classified as hazardous or toxic under the Environmental Laws.
(s) Minute Books. The minute book of the Company contains minutes of
all official meetings of directors and shareholders and all actions by written
consent without a meeting by the directors and shareholders since June 16, 1999
and reflects all actions by the directors (and any committee of directors) and
shareholders with respect to all transactions referred to in such minutes
accurately in all material respects.
- 9 -
(t) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the SEC Documents or on the Schedule of Exceptions.
Except as set forth in the SEC Documents or on the Schedule of Exceptions,
neither the Company nor any subsidiary is in breach of any employment contract,
agreement regarding proprietary information, noncompetition agreement,
nonsolicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such subsidiary. Since
the date of the December 31, 2001 Form 10-KSB, no officer, consultant or key
employee of the Company or any subsidiary whose termination, either individually
or in the aggregate, could have a Material Adverse Effect, has terminated or, to
the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any subsidiary.
(u) Securities Act. Subject to the accuracy of the Investors'
representations in Section 2, the offer, sale, and issuance of the Debentures
and the Warrants in conformity with the terms of this Agreement constitute
transactions exempt from the registration requirement of Section 5 of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). No form of general
solicitation or general advertising was used by the Company, or its
representatives in connection with the offer or sale of the Debentures and the
Warrants.
(v) Insurance. Except as disclosed in the Company SEC Reports, the
Company carries or will have the benefit of insurance in such amounts and
covering such risks as is adequate for the conduct of its business and the value
of its properties.
(w) Foreign Corrupt Practices Act. The Company has not taken any
action which would cause it to be in material violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder.
(x) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10-Q or Form 10-K,
whichever is most current, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, 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 in the SEC Documents.
(y) Use of Proceeds. The proceeds from the sale of the Units will be
used by the Company and its subsidiaries for general corporate purposes.
(z) Acknowledgment Regarding Investors's Purchase of Units. The
Company acknowledges and agrees that the Investors are acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Investors are not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investors or any of their
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investors' purchase of the
Units. The Company further
- 10 -
represents to the Investors that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its own representatives and counsel
(aa) Absence of Certain Developments. Except as provided in SEC
Reports or on the Schedule of Exceptions, since the date of the financial
statement contained in the most recently filed Form 10-QSB or Form 10-KSB,
whichever is most current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as
adjusted to reflect the current nature and volume of he Company's or such
subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to a stockholder with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of
its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
cancelled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Purchaser or its representatives;
(vii) suffered any material losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the
loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(x) entered into any other material transaction, whether or not
in the ordinary course of business;
- 11 -
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
Subsidiaries.
4. Covenants by the Company. The Company covenants with the Investors
as follows:
(a) Securities Compliance. If applicable, the Company shall notify
the Amex, in accordance with their rules and regulations, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Units to the Investors or
subsequent holders.
(b) Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to the Transaction Documents, and will
not take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein and in the other Transaction Documents. The Company will take
all action reasonably necessary to continue the listing or trading of its Common
Stock on the Amex and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Amex and shall
provide the Investors with copies of any correspondence to or from the Amex
which questions or threatens delisting of the Common Stock within three (3)
Business Days of the Company's receipt thereof, until the Investors has disposed
of all of its Units.
(c) Other Agreements/Best Efforts. The Company shall not enter into
any agreement the terms of which would restrict or impair the ability of the
Company to perform its obligations under this Agreement. The Company agrees (i)
to use all reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by the Transaction Documents,
(ii) to execute any documents, instruments or conveyances of any kind that may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder; and (iii) to cooperate with the Investors
in connection with the foregoing.
(d) Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument or by operation of law the
- 12 -
obligation to deliver to the Investors such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement.
(e) At the Closing, On2 will pay White & Case LLP $10,000 as
reimbursement for Abanat's legal fees.
5. Covenants by the Investors. Each Investor covenants jointly and not
severally with the Company to not enter into any agreement the terms of which
would restrict or impair the ability of such Investor to perform its obligations
under this Agreement. Each Investor agrees jointly and not severally (i) to use
all reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by the Transaction Documents, (ii)
to execute any documents, instruments or conveyances of any kind that may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder; and (iii) to cooperate with the Company
in connection with the foregoing.
6. Indemnity by the Investors. Each Investor agrees jointly and not
severally that it will indemnify and hold harmless the Company, its affiliates,
its Subsidiaries and each of their respective officers, directors, employees and
agents for any costs, liabilities or losses caused by any misstatement of
material fact by such Investor with respect to the representations and
warranties contained in Section 2 or any other written information furnished to
the Company by the Investor in connection with the investment contemplated by
this Agreement.
7. Indemnity by the Company. The Company agrees that it will indemnify and
hold harmless the Investors for any costs, liabilities or losses caused by any
misstatement of material fact by the Company with respect to the representations
and warranties contained in Section 3 or a breach of any covenant or any
obligation of the Company set forth in this Agreement.
8. Grant of Security Interests.
8.1 Collateral. For purposes of this Section 8, the term "Collateral"
shall mean all property and property interests of the Company, real or personal,
tangible or intangible, whether now existing or hereafter acquired, and any and
all additions, accessions, replacements and substitutions thereto or therefor,
guaranties and securities thereon, and products thereof, including, without
limitation:
(a) All machinery, equipment, furniture and fixtures, now owned or
hereafter acquired, together with all replacements thereof, all attachments,
accessories, parts, equipment and tools belonging thereto or for use in
connection therewith.
(b) All inventory, raw materials, work in process and supplies now
owned or hereafter acquired.
(c) All accounts and accounts receivable now existent or hereafter
created.
(d) All general intangibles, now existent or hereafter created, including
but not limited to
- 13 -
all Intellectual Property, as defined below.
(e) All automotive equipment, now owned or hereafter acquired, together
with all replacements thereof, all attachments, accessories, parts, equipment
and tools belonging thereto or for use in connection therewith.
(f) All property of the same type or description as that listed herein,
acquired after the date hereof; the Company's interest in all property consigned
to the Company now or in the future, whether equipment, inventory, or otherwise;
all replacements, additions, improvement, and accessions with respect to the
foregoing collateral; all products of the foregoing collateral; all proceeds of
the foregoing collateral; and all payments with respect to insurance covering
the foregoing collateral, which are hereby assigned to the Investors; and all
records, books, and books of account with respect to the foregoing collateral.
(g) For purposes of this Section 8, the term "Intellectual Property" shall
mean all rights with respect to trademarks, service marks, trade names, trade
styles, patents, copyrights (and any applications for any of the foregoing),
trade-secrets information, other proprietary rights and rights to prevent others
from doing acts that constitute unfair competition with the Company or
misappropriation of its property, including without limitation any sums (net of
expenses) that the Company may receive arising out of any claim for infringement
of its rights in any of the foregoing; all rights of the Company under contracts
to enjoy performance by others or to be entitled to enjoy rights granted by
others, including without limitation any licenses; and any goodwill associated
with any of the foregoing.
8.2 Security Interest to the Investors. As security for the payment and
performance of all obligations of the Company to the Investors arising under the
Debentures the Company hereby grants to the Investors a security interest in the
Collateral.
8.3 Financing Statements and Other Action. The Company agrees to take such
actions as are reasonably necessary to protect the security interests granted
herein or to otherwise carry out the provisions of this Section 8, including but
not limited to the execution of financing, continuation, amendment and
termination statements under the UCC, the execution and filing of the
conditional assignment agreements for trademarks, service marks and tradenames
and patents and similar instruments. The Company shall pay all costs of filing
any and all financing, continuation, amendment or termination statements with
respect to the security interests created by this Section 8. The Company hereby
appoints the Investors as their attorney in fact irrevocably to do all acts and
things which the Company may be required to do under this Section 8 or which the
Investors may reasonably deem necessary to perfect and continue perfected the
security interests created by this Section 8. This power, being coupled with an
interest, is irrevocable as long as the Company is indebted to the Investors.
8.4 The Company's Principal Place of Business & Name.
(a) The Company represents and warrants to the Investors that the
Company's executive office is located at 000 Xxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx,
XX 00000.
- 14 -
(b) The Company represents and warrants to the Investors that the Company
will not change its name, identity or corporate structure without giving the
Investors at least thirty (30) days prior written notice thereof and, in
connection with any such change, the Company will execute and deliver, or cause
to be executed and delivered, to the Investors all such additional security
agreements, financing statements and other documents as the Investors shall
reasonably request. This provision shall not be deemed to constitute consent to
any change of identity or corporate structure otherwise prohibited in any
agreement between the Company and the Investors.
8.5 Encumbrances. The Company represents and warrants to the Investors
that the Company has good title to the Collateral and that there are no liens,
security interests or other encumbrances against the Collateral. The Company
covenants to notify promptly the Investors of any claim, lien, security interest
or other encumbrance made against the Collateral and shall defend the Collateral
against any claim, lien, security interest or other encumbrance adverse to the
Investors.
8.6 Maintenance of Collateral and Records. The Investors may examine and
inspect the Collateral at any reasonable time and for that purpose may enter
upon any premises where the Collateral may be located. The Company shall pay
when due all taxes, assessments and other charges lawfully levied or assessed
upon the Collateral, other than those which are being contested in good faith.
8.7 Sales: Other Security Interests: Financing Statements. The
Company will not:
(a) except as disclosed in Schedule B hereto, sell, lease, transfer
or otherwise dispose of the Collateral or any interest therein, except in the
ordinary course of business, without the prior written consent of the Investors;
or
(b) mortgage, or create a security interest in or lien upon, the
Collateral in favor of any person other than the Investors, or suffer to exist a
security interest in or lien upon the Collateral in favor of any person other
than the Investors, or permit anything to be done that may impair the value of
the Collateral or the security intended to be afforded by this Section 8.
8.8 Default. For purposes of this Section 8, each of the following events
shall be deemed an "Event of Default":
a. The Company fails to make any payment of principal on the
Debentures as required pursuant to the Debentures and same
shall continue for a period of fifteen (15) days; or
b. Any of the representations or warranties made by the Company
herein or in any certificate or financial or other written
statements heretofore or hereafter furnished by the Company in
connection with the execution and delivery of the Debentures
shall be false or misleading in any material respect at the
time made; or
- 15 -
c. The Company fails to issue shares of Common Stock to the
holder of a Debenture or to cause its Transfer Agent to
issue shares of Common Stock upon exercise by the holder of
the conversion rights of the Holder of a Debenture in
accordance with the terms of the Debentures, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder
of a Debenture upon conversion of the Debentures and when
required by the Debentures or the Registration Rights
Agreement, and such transfer is otherwise lawful, or fails
to remove any restrictive legend or to cause its Transfer
Agent to transfer any certificate or any shares of Common
Stock issued to the Holder of a Debenture upon conversion
of the Debentures as and when required by the Debentures,
the Agreement or the Registration Rights Agreement and such
legend removal is otherwise lawful, and any such failure
shall continue uncured for fifteen (15) business days after
written notice from the Holder of a Debenture of such
failure; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Debenture and such failure
shall continue uncured for a period of thirty (30) days after
written notice from the Holder of a Debenture of such failure;
or
e. The Company shall (1) admit in writing its inability to pay
its debts generally as they mature; (2) make an assignment for
the benefit of creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the appointment of
a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of
the properties or assets of the Company and shall not be
dismissed within sixty (60) days thereafter; or
h. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by
any action or answer approve of, consent to, or acquiesce
in any such proceedings or admit the material
- 16 -
allegations of, or default in answering a petition filed in
any such proceeding; or
i. The Company shall have its Common Stock suspended or delisted
from an exchange for in excess of thirty (30) trading days and
fail to initiate all steps to quote the Common Stock on the
OTC Bulletin Board.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder of the
Debenture (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the holder of the Debenture and in its discretion, the
Holder may consider the Debenture immediately due and payable, without
presentment, demand, protest or notice of any kinds, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder of the Debenture may immediately
enforce any and all of his rights and remedies provided herein or any other
rights or remedies afforded by law.
8.9 Rights on Default.
(a) If an Event of Default shall occur, the Investors may:
(i) without notice or demand to the Company declare all
obligations of the Company to the Investors to be immediately due and
payable;
(ii) exercise the rights and remedies accorded to a secured party
under the UCC or other law or under any instrument or document securing
the obligations of the Company to the Investors (including without
limitation thereto the right to take immediate possession of the
Collateral);
(iii) perform any warranty, covenant or agreement which the
Company has failed to perform under this Agreement; and
(iv) take any other action which the Investors deem necessary or
desirable to protect the Collateral or the security interests granted
herein.
(b) No course of dealing or delay in accelerating any obligation of the
Company to the Investors or in taking or failing to take any other action with
respect to any Event of Default shall affect the right of the Investors to take
such action at a later time. No waiver as to any one Event of Default shall
affect the rights of the Investors upon any other Event of Default.
(c) The Investors may exercise any or all of its rights or remedies after
an Event of Default concurrently with, or independently of, and without regard
to, the provisions of any other security agreement or other instrument which
secures any obligation of the Company to the Investors.
8.10 Termination of Security Interest. The obligations of the Company set
forth in this Section 8 shall terminate when all obligations of the Company to
the Investors have been paid
- 17 -
and performed in full or when the entire balance of principal and interest under
the Debentures has been paid or converted.
8.11 Waivers. The Company hereby waives demand, notice, protest, notice of
acceptance of this Section 8, notice of Collateral received or delivered or
other action taken in reliance hereon and all other demands and notices of any
description. With respect both to obligations of the Company to the Investors
and with respect to the Collateral, the Company assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of Collateral, to the addition or release of
any party or person primarily or secondarily liable to the acceptance of partial
payment thereof and the settlement, compromising or adjusting of any thereof,
all in such manner and at such time or times as the Investors may deem
advisable. The Investors may exercise their rights with respect to the
Collateral without resorting to and without regard to other collateral or
sources for reimbursement for liability. The Investors shall not be deemed to
have waived any of their rights upon or under any obligation of the Company to
the Investors or the Collateral unless such waiver is in writing and signed by
the Investors. No delay or omission on the part of the Investors in exercising
any right shall operate as a waiver of such right or any other right. A waiver
on any one occasion shall not be construed as a bar to or waiver of any right on
any future occasion. All rights and remedies of the Investors with respect to
obligations of the Company to the Investors or the Collateral, whether evidenced
hereby or by any other instrument or document, shall be cumulative and may be
exercised separately or concurrently.
9. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Amex" means the American Stock Exchange.
(b) "Business Day" means any day other than a Saturday, Sunday or a
day on which commercial banks in New York City are required or authorized to
close.
(c) "Investors' Rights Agreement" means the Investors' Rights
Agreement, dated the date hereof, by and between the Company and Investors,
substantially in the form attached hereto as Exhibit D.
(d) "Material Adverse Effect" shall mean any adverse effect on the
business, operation, properties, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its material obligations under this Agreement or any other Transaction Document.
(e) "SEC" means the Securities and Exchange Commission.
(f) "Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Escrow Agreement, and the Investors' Rights Agreements entered
into under this Agreement.
- 18 -
10. Miscellaneous.
(a) Expenses. Each party will bear its own expenses in respect of
the transactions contemplated by this Agreement, whether or not the Closing
occurs.
(b) Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree (i) to use all reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement; (ii) to execute any documents, instruments or
conveyances of any kind that may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder; and (iii) to cooperate with
each other in connection with the foregoing.
(c) Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be deemed to be delivered when received by certified mail, postage
prepaid, return receipt requested, when delivered by an expedited delivery
service or when sent by facsimile or e-mail after confirmation. All notices
shall be directed to the parties at the respective addresses set forth below or
to such other address as either party may, from time to time, designate by
notice to the other party:
If to the Company: 000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: CFO and General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Investors: Abanat Limited
With copies to: White & Case LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Xxxxxxx: Xxxxxx Xxxxxxx
First Choice Automobiles
00000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx, XX 00000
Tel: 000-000-0000
If to Bears, Sr.: Xxxxxx Bears, Sr.
- 19 -
Universal Container
00000 XX 00
Xxxxxx, XX 00000
Tel: 000-000-0000
If to Bears, Jr.: Xxxxxx Bears, Jr.
Universal Container
00000 XX 00
Xxxxxx, XX 00000
Tel: 000-000-0000
If to Xxxxx: Xxxxxxx X. Xxxxx
Active Buddy
000 Xxxx 00xx Xxxxxx #0X
Xxx Xxxx, XX 00000
If to Xxxxxx: Xxxx X. Xxxxxx
000 Xxxxxxx Xxxx Xxxx - 00X
Xxx Xxxx, XX 00000-0000
Tel: 000-000-0000
- 20 -
(d) Amendments and Waivers. Any term of this Agreement may be
amended or terminated and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the Investors. Any
amendment, termination or waiver effected in accordance with this Section shall
be binding upon each holder of any securities issued pursuant to this Agreement
(including securities into which such securities have been converted or
exchanged), each future holder of any or all such securities, and the Company.
(e) Assignability. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, duties or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other parties hereto, except that
vested rights to receive payment or to initiate legal action with respect to
causes of action that have accrued hereunder shall be assignable by devise,
descent or operation of law
(f) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement, and the balance of this Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
(g) Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to any conflicts of laws provisions. Each of the parties hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement shall be brought exclusively
in the Federal or state courts sitting in New York, New York, and any court to
which an appeal may be taken in any such litigation, and (ii) by execution and
delivery of this Agreement, irrevocably submits to and accepts, with respect to
any such action or proceeding, for itself and in respect of its properties and
assets, generally and unconditionally, the jurisdiction of the aforesaid courts,
and irrevocably waives any and all rights such party may now or hereafter have
to object to such jurisdiction.
(h) Binding Effect. Except as herein otherwise expressly stipulated
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties signatory hereto, and their respective successors and permitted
assigns.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(j) Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements with respect to the subject
matter hereof.
(k) Waiver of Jury Trial. Each of the Company and the other parties
hereto waives its right to a jury trial with respect to any action or claim
arising out of any dispute in connection with this agreement, any rights or
obligations hereunder or the performance of such
- 21 -
rights and obligations. Except as prohibited by law, each of the Company and the
other parties hereto hereby waives any right it may have to claim or recover in
any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. Each of the Company and other parties hereto (x) certifies that
no representative, agent or attorney of any party hereto has represented,
expressly or otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers and (y) acknowledges that the parties
hereto have been induced to enter into this Agreement by, among other things,
the waivers and certifications contained herein.
(l) Publicity. Except as may be required by applicable law, neither
party hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval of the Company and the Investors. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
[Signature Page Follows]
- 22 -
This Unit Subscription and Security Agreement has been executed as of the
date and year first written above.
ON2 TECHNOLOGIES, INC.
By: /s/ Xxxxxxx X. Reusing
---------------------------------
Name: Xxxxxxx X. Reusing
Title: SVP/General Counsel
ABANAT LIMITED
By: /s/ Xxxxx XxXxxxxxxx
---------------------------------
Name:
Title:
/s/ Xxxxxx Xxxxxxx
---------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxxxx Bears, Sr.
---------------------------------
Xxxxxx Bears, Sr.
/s/ Xxxxxx Bears, Jr.
---------------------------------
Xxxxxx Bears, Jr.
/s/ Xxxxxxx X. Xxxxx
---------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
- 23 -
EXHIBIT A
Name of Investor Units Debenture Amount. Warrant
---------------- ----- ------------------ -------
Abanat Limited 25 $250,000 446,429 shares
Xxxxxxx 5 $50,000 89,286 shares
Bears Jr. 10 $100,000 178,571 shares
Bears 10 $100,000 178,571 shares
Xxxxx 5 $50,000 89,286 shares
Xxxxxx 10 $100,000 178,571 shares
- 24 -
EXHIBIT B
FORM OF DEBENTURE
THIS DEBENTURE AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS DEBENTURE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), NOR UNDER ANY
STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED BY THE PROVISIONS OF
REGULATION S UNDER THE ACT OR PURSUANT TO REGISTRATION UNDER THE ACT OR AN
AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
THE TRANSFER OF THIS DEBENTURE AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF
ARE RESTRICTED AS DESCRIBED HEREIN.
THE SALE, ASSIGNMENT, TRANSFER, PLEDGE AND OTHER DISPOSITION OF THIS DEBENTURE
AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS DEBENTURE ARE RESTRICTED BY
THE INVESTOR'S RIGHTS AGREEMENT (THE "INVESTOR'S RIGHTS AGREEMENT"), DATED
AUGUST 22, 2002. A COPY OF THE INVESTOR'S RIGHTS AGREEMENT IS ON FILE WITH THE
CORPORATE SECRETARY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. A COPY
THEREOF MAY BE OBTAINED AT NO COST UPON WRITTEN REQUEST THEREFOR MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE CORPORATE SECRETARY AT THE PRINCIPAL
OFFICES OF THE COMPANY.
No. D-[ ] U.S. $[ ]
ON2 TECHNOLOGIES, INC.
SERIES A CONVERTIBLE DEBENTURE DUE SEPTEMBER 4, 2006
THIS DEBENTURE is one of a duly authorized issue of up to $1,000,000 in
Debentures of ON2 TECHNOLOGIES, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Company") designated as its Series A
Convertible Debentures due 2006.
The Company has issued this Debenture pursuant to a Unit Subscription and
Security Agreement, dated as of September 3, 2002 (the "Unit Subscription and
Security Agreement"), together with a related warrant (the "Warrant"), and has
granted certain registration rights
- 25 -
pursuant to the terms of an Investor's Rights Agreement, dated as of September
3, 2002 (the "Investor's Rights Agreement"). The date on which this Debenture is
issued is referred to herein as the "Issue Date".
FOR VALUE RECEIVED, the Company promises to pay to [ ], [a ____
corporation], the registered holder hereof (the "Holder"), the principal sum of
[ ] (the "Face Amount") plus all Accrued Interest (as defined below in Section
1) on September 4, 2006 (the "Maturity Date"). Interest shall accrue on this
Debenture as set forth herein.
This Debenture is subject to the following additional provisions:
1. INTEREST. This Debenture shall bear interest at a rate of [prime on
closing date + 1]% per annum on the unpaid Face Amount from the date of the
Debenture until the Maturity Date, payable semi-annually on May 15 and November
15 of each year (each an "Interest Payment"). Interest Payments shall be payable
in shares of Common Stock of the Company, $0.01 par value per share ("Common
Stock"). Such shares will be valued based on the average closing price of Common
Stock on the American Stock Exchange for the 10 trading days prior to the
dividend date.
2. EXCHANGE. The Debentures are issuable in denominations of Ten Thousand
Dollars (US$10,000.00) and integral multiples thereof (unless at the time of
issue of the Debenture, the aggregate amount due to the Company under the Unit
Subscription Agreement is not an integral multiple of $10,000.00, in which case
the Debentures may be issued in other denominations). The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same, and
shall bear the same date as the Debenture for which it is exchanged. No service
charge will be made for such registration or transfer or exchange.
3. RESTRICTIONS ON TRANSFER. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged only pursuant to registration under the Act or an
available exemption from registration and in compliance with other applicable
state and foreign securities laws and the Investor's Rights Agreement. The
Company covenants and agrees that it will not register any transfer of this
Debenture which is not made in accordance with the provisions of the Act or
pursuant to an available exemption from registration. In the event of any
proposed transfer of this Debenture, the Company may require, prior to issuance
of a new Debenture in the name of such other person, that it receive reasonable
transfer documentation including legal opinions, satisfactory to the Company,
that the issuance of the Debenture in such other name does not and will not
violate the Act or any applicable state or foreign securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's debenture register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
- 26 -
4. CONVERSION. The Holder is entitled, at its option after the date that
is 180 days after the date hereof, subject to the following provisions of this
Section 4, to convert all or a portion of this Debenture into shares of Common
Stock of the Company, $0.01 par value per share ("Common Stock"), at any time
until the Maturity Date, at a conversion price for each share of Common Stock
equal to the amount of $0.112 (the "Conversion Price"); provided that the
principal amount being converted is at least US $10,000.00 (unless if at the
time of such election to convert the aggregate principal amount of all
Debentures registered to the Holder is less than Ten Thousand Dollars (US
$10,000.00), then the whole amount thereof). The number of shares of Common
Stock issuable upon exercise of this Debenture (the "Conversion Shares") and the
Conversion Price may be adjusted from time to time as hereinafter set forth. The
number of Conversion Shares into which such Debentures are convertible shall be
determined by dividing (a) the principal amount of the Debentures to be
converted by (b) the Conversion Price then in effect.
In order to convert the principal amount of this Debenture, or any portion
thereof, the Holder shall send by facsimile transmission (and confirm such
transmission by telephone or voicemail message), a notice of conversion to the
Company, stating the principal amount to be converted and the applicable
Conversion Price, and prior to Conversion, the Holder must physically surrender
this Debenture to the Company.
No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. The date on which notice of conversion is
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice ("Notice of Conversion"),
substantially in the form annexed hereto as Exhibit A, duly executed, to the
Company, provided that the Holder shall deliver to the Company's transfer agent
or the Company the original Debentures being converted within five (5) business
days thereafter (and if not so delivered within such time, the Conversion Date
shall be the date on which the later of the Notice of Conversion and the
original Debentures being converted is received by the Company). Facsimile
delivery of the Notice of Conversion shall be accepted by the Company at
facsimile number (000) 000-0000; ATTN: Corporate Secretary, or at such other
facsimile number as the Company may provide to the Holder.
5. REPAYMENT. Any Debentures not previously converted as of the Maturity
Date, shall be, unless otherwise designated by the Holder, automatically
converted, as of the Maturity Date at the applicable Conversion Price. The
Holder may elect, by notice to the Company at any time within ten (10) days
prior to the Maturity Date, that the Company repay any Debentures which have not
yet been converted as of the Maturity Date by payment of the principal amount of
the Debenture on the Maturity Date.
6. ADJUSTMENTS TO CONVERSION PRICE. The number of Conversion Shares and
the Conversion Price shall be subject to adjustment from time to time as
provided in this Section. There shall be no adjustment hereunder with respect to
(A) the issuance or sale of shares or options to purchase shares of the Company
Common Stock to employees, officers, directors and consultants of the Company
and its subsidiaries (as such number of shares is
- 27 -
appropriately adjusted for subsequent stock splits, stock combinations, stock
dividends and recapitalizations) pursuant to plans or arrangements approved by
the Company's Board of Directors; (B) the issue or sale to other entities or the
owners thereof for acquisition purposes; (C) the issue and sale to banks,
savings and loan associations, equipment lessors or other similar lending
institutions in connection with such entities providing working capital credit
facilities or equipment financing to the Company; (D) the issuance of Common
Stock to Crossover Ventures, Inc. or its successors or assigns under the terms
of the equity line of credit arrangement, as such may be amended from time to
time, and (E) the issuance of Common Stock upon conversion of any shares of any
series of the Company's Preferred Stock, the Company's Series A Convertible
Debentures due 2006 or the Warrants.
6.1 If, at any time while any portion of this Debenture remains
outstanding, the Company shall pay or make a dividend or other distribution on
any class of capital stock of the Company in Common Stock, then, following the
record date for the determination of holders of Common Stock entitled to receive
such stock dividend or other distribution, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
exercise of this Debenture shall be increased in proportion to such increase in
outstanding shares.
6.2 If, at any time while any portion of this Debenture remains
outstanding, (a) the outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, then, following the date upon which
such subdivision becomes effective, the Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on exercise of
this Debenture shall be increased in proportion to such increase in outstanding
shares, and, (b) if outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, then, following the date upon
which such combination becomes effective, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
exercise of this Debenture shall be decreased in proportion to such decrease in
outstanding shares.
6.3 The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be deemed to involve
a subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number or amount of securities and/or cash and/or other consideration
outstanding immediately thereafter, and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, within the meaning of Section 5.1.
6.4 If, at any time while any portion of this Debenture remains
outstanding, the Company issues or sells any Convertible Securities (as defined
below) or any shares of Common Stock for a consideration per share less than
Fair Market Value (as defined below) of the Common Stock determined on the date
of such issuance or sale, then immediately upon such issue or sale or deemed
issue or sale, the Conversion Price shall be reduced to the Conversion Price
determined by dividing (A) the sum of (i) the product derived by multiplying the
- 28 -
Conversion Price in effect immediately prior to such issue or sale by the number
of shares of Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, plus (ii) the consideration, if any, received by
the Company upon such issue or sale, by (B) the number of shares of Common Stock
Deemed Outstanding immediately after such issue or sale. In such instances, the
number of Conversion Shares shall be increased by multiplying such number of
shares by a fraction, of which the numerator will be the Conversion Price in
effect immediately prior to such issue or sale, and the denominator will be the
Conversion Price immediately after such issue or sale. "Common Stock Deemed
Outstanding" means, at any given time, the number of shares of Common Stock
actually outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding assuming exercise and/or conversion of the Company's
Options (as defined below) and Convertible Securities, whether or not such
Options or Convertible Securities are actually exercisable at such time.
"Options" means any rights, warrants or options sold or granted by the Company
to subscribe for or purchase Common Stock or Convertible Securities.
"Convertible Securities" means any stock or securities directly or indirectly
convertible into or exchangeable for Common Stock. "Fair Market Value" means, as
of any date, the value of a share of Common Stock, determined as follows: (i) if
such Common Stock is then listed on a national securities exchange, its closing
price on the date of determination on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, as reported in The
Wall Street Journal; (ii) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq National Market on the date of
determination, as reported in The Wall Street Journal; (iii) if such Common
Stock is not quoted on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of the closing bid and
asked prices on the date of determination, as reported in The Wall Street
Journal; or (iv) if none of the foregoing is applicable, by the Board of
Directors of the Company acting in good faith.
6.5 In the event of any capital reorganization of the Company, any
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
any sale or transfer to another person or entity of the property of the Company
as an entirety or substantially as an entirety, or any consolidation or merger
of the Company with or into another corporation (where the Company is not the
surviving corporation or where there is a change in or distribution with respect
to the Common Stock), this Debenture shall after such reorganization,
reclassification, consolidation, transfer or merger be exercisable for the kind
and number of shares of stock or other securities or property of the Company or
of the successor corporation resulting from such consolidation, transfer or
surviving such merger, if any, to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon exercise of this Debenture would
have been entitled upon such reorganization, reclassification, consolidation,
transfer or merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations, transfers, or
mergers.
6.6 Notice of Adjustment of Conversion Price. Whenever the Conversion
Price is adjusted as herein provided:
- 29 -
(i) the Company shall compute the adjusted Conversion Price in
accordance with this Section 6 and shall prepare a certificate signed by an
officer of the Company, setting forth the adjusted Conversion Price and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency maintained for
this Debenture; and
(ii) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be prepared by
the Company, and as soon as practicable after it is prepared, such notice shall
be mailed by the Company at its expense to the Holder at its last address as it
shall appear in the debenture register.
6.7 Other Dilutive Events. If any event occurs as to which the provisions
of this Section 6 are not strictly applicable or, if strictly applicable, would
not fairly and adequately protect the conversion rights of the Holder in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary to protect conversion rights as aforesaid; provided that no
such adjustment will increase the Conversion Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 6.
7. REPRESENTATIONS OF HOLDER. The Holder of the Debenture, by acceptance
hereof, represents and warrants that the Debenture is being acquired for
investment and that such Holder will not offer, sell or otherwise dispose of
this Debenture or the Shares of Common Stock issuable upon conversion thereof
except pursuant to registration under the Act or pursuant to an available
exemption from registration and under circumstances which will not result in a
violation of the Act or any applicable state Blue Sky or foreign laws or similar
laws relating to the sale of securities. The Holder further agrees that it will
not engage in hedging transactions with regard to the Debenture or the shares of
Common Stock issuable upon conversion thereof unless in compliance with the Act.
8. GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
rules governing the conflicts of laws. The parties hereby irrevocably consent to
the jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out of
or relating to this Debenture.
9. EVENTS OF DEFAULT. The following shall constitute an "Event of
Default":
a. The Company fails to make any payment of principal on this
Debenture as required pursuant to the Debenture and same
shall continue for a period of fifteen (15) days; or
- 30 -
b. Any of the representations or warranties made by the Company
herein or in any certificate or financial or other written
statements heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this Debenture
shall be false or misleading in any material respect at the
time made; or
c. The Company fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this
Debenture, fails to transfer or to cause its Transfer Agent
to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture and
when required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or fails
to remove any restrictive legend or to cause its Transfer
Agent to transfer any certificate or any shares of Common
Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the
Agreement or the Registration Rights Agreement and such
legend removal is otherwise lawful, and any such failure
shall continue uncured for fifteen (15) business days after
written notice from the Holder of such failure; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Debenture and such failure
shall continue uncured for a period of thirty (30) days after
written notice from the Holder of such failure; or
e. The Company shall (1) admit in writing its inability to pay
its debts generally as they mature; (2) make an assignment for
the benefit of creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the appointment of
a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of
the properties or assets of the Company and shall not be
dismissed within sixty (60) days thereafter; or
h. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty
(60) days after
- 31 -
such institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings
or admit the material allegations of, or default in answering
a petition filed in any such proceeding; or
i. The Company shall have its Common Stock suspended or delisted
from an exchange for in excess of thirty (30) trading days and
fail to initiate all steps to quote the Common Stock on the
OTC Bulletin Board.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
Holder of the Debenture (which waiver shall not be deemed to be a waiver
of any subsequent default) at the option of the Holder and in its
discretion the Holder may
(i) without notice or demand to the Company declare all obligations
of the Company to the to be immediately due and payable;
(ii) exercise the rights and remedies accorded to a secured party
under the UCC or other law or under any instrument or document securing
the obligations of the Company to the Investors (including without
limitation thereto the right to take immediate possession of the
Collateral (as defined in the Unit Subscription and Security Agreement);
(iii) perform any warranty, covenant or agreement which the
Company has failed to perform under this Agreement; and
(iv) take any other action which the Investors deem necessary or
desirable to protect the Collateral (as defined in the Unit Subscription
and Security Agreement) or the security interests granted herein.
10. SECURITY, PRIORITY, SUBORDINATION. All principal and interest due
under this Debenture is secured by the Collateral (as defined in the Unit
Subscription and Security Agreement). All principal and interest due on this
Debenture shall first be paid in full (hereafter, "Payment in Full") in
accordance with the terms hereof before any payment on account of principal of,
premium, if any, interest, dividends or any other amounts shall be made upon any
Junior Securities, whether on account of any purchase or redemption or other
acquisition of such Junior Securities, at maturity or otherwise.
The Company may make or permit to remain outstanding any indebtedness or
security, except that the Company may not issue any securities or indebtedness
which are Senior Securities unless it shall have obtained the consent of not
less than two-thirds in interest of the Holders of Debentures of this series,
whether written or by the vote of such Holders at a meeting, to incur such
indebtedness.
In the event of (x) any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the
- 32 -
Company or to its creditors, as such, or to its assets or (y) the dissolution or
other winding up of the Company, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy proceedings, or (z) any assignment for
the benefit of creditors or any marshalling of the material assets or material
liabilities of the Company (each a "Liquidation Event"), then, and in any such
event, the Holder of this Debenture shall first be entitled to receive Payment
in Full of all principal due on this Debenture before any payment on account of
principal, premium, if any, interest, dividends or any other amounts is made on
the Junior Securities (as defined below). In the event that upon the occurrence
of a Liquidation Event, the assets available for distribution to the Holder of
this Debenture and the holders of Pari Passu Securities (as defined below) are
insufficient to pay all principal due or to become due on this Debenture and on
the Pari Passu Securities, the entire assets of the Company shall be distributed
ratably among the Holder of this Debenture and the holders of Pari Passu
Securities in proportion to the ratio that the amount so payable on each such
security bears to the aggregate preferential amount payable on all such shares.
Company "Junior Securities" shall mean all securities and indebtedness of
the Company that are not Pari Passu Securities or Senior Securities as defined
below. "Pari Passu Securities" shall mean any securities or indebtedness of the
Company that by their terms rank pari passu with this Debenture in respect of
interest, dividends, redemption or distribution upon liquidation, including all
of the other Debentures. "Senior Securities" shall mean any securities or
indebtedness of the Company that by their terms have a preference over this
Debenture in respect of dividends, redemption or distribution upon liquidation.
For purposes hereof, the Common Stock and all other capital stock of the Company
shall be deemed to be Junior Securities.
11. MISCELLANEOUS. Nothing contained in this Debenture shall be construed
as conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a stockholder in respect of any meeting of
stockholders or any rights whatsoever as a stockholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
No recourse shall be had for the payment of the principal of this
Debenture, or for any claim based hereon, or otherwise in respect hereof,
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or any successor Company, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
All payments contemplated hereby to be made "in cash" shall be made in
immediately available good funds in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. All payments of cash and each delivery of shares of Common Stock
issuable to the Holder as contemplated hereby shall be made to the Holder at the
address last appearing on the debenture register of the Company as designated in
writing by the Holder from time to time; except that the Holder can designate,
by notice to the Company, a different delivery address for any one or more
specific payments or deliveries.
- 33 -
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Debenture, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of the Debenture, if mutilated, the Company shall execute and
deliver to the Holder a new debenture identical in all respects to this
Debenture.
If the indebtedness represented by this Debenture or any part thereof is
collected in any proceeding or if this Debenture is placed in the hands of
attorneys for collection after the occurrence of an Event of Default, the
Company shall pay, as an obligation under this Debenture, in addition to the
obligation to pay principal and interest, all costs of collecting this
Debenture, including reasonable attorneys' fees.
No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
All the covenants, stipulations, promises and agreements by or on behalf
of the Company contained in this Debenture shall be binding upon the Company's
successors and assigns whether or not so expressed.
If any provision of this Debenture is found by a court of competent
jurisdiction to be invalid, illegal or unenforceable, all other provisions of
this Debenture shall remain in effect, and if any provision is in applicable to
any person or circumstances, such provision shall nevertheless remain applicable
to all other persons and circumstances.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August 22, 2002
ON2 TECHNOLOGIES, INC.
By:_______________________________________
__________________________________________
(Print Name)
__________________________________________
(Title)
- 34 -
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of ON2 TECHNOLOGIES, INC. (the "Company") according to the conditions hereof, as
of the date written below.
Conversion Date*
__________________________________________________________________________
Applicable Conversion Price
____________________________________________________
Signature
__________________________________________________________________________
[Name]
Address:
__________________________________________________________________________
__________________________________________________________________________
* This original Debenture must be received by the Company or its transfer agent
by the fifth business date following the Conversion Date.
- 35 -
EXHIBIT C
FORM OF WARRANT
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), NOR UNDER ANY
STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED BY THE PROVISIONS OF
REGULATION S UNDER THE ACT OR PURSUANT TO REGISTRATION UNDER THE ACT OR AN
AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
ON2 TECHNOLOGIES, INC.
Warrant to purchase an aggregate of [ ] shares of Common Stock,
par value $0.01 per share
No.[ ]
THIS CERTIFIES that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [ ], [an individual][a ___
corporation] (the "Holder"), is entitled to subscribe for and purchase from
Xx0.xxx Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time, during the period
commencing on the date set forth above and expiring at 5:00 p.m. (New York City
time) on September 4, 2006 (the "Expiration Date"), [ Thousand] ([ ]) shares of
the Company's Common Stock, par value $0.01 per share (the "Common Stock") at an
exercise price (the "Exercise Price") per share equal to $0.112. As used herein,
the term this "Warrant" shall mean and include this Warrant and any Warrant or
Warrants hereafter issued as a consequence of the exercise or transfer of this
Warrant in whole or in part. As used herein, the term "Holder" shall include any
transferee to whom this Warrant has been transferred in accordance with the
terms hereof.
The number of shares of Common Stock issuable upon exercise of this
Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth in Section 6.
1. This Warrant may be exercised until 5:00 p.m. (New York City time) on
September 4, 2006, as to the whole or any lesser number of whole Warrant Shares,
by transmission by telecopy of the Election to Exercise, followed within three
(3) business days by the surrender of
- 36 -
this Warrant (with the Election to Exercise attached hereto duly executed) to
the Company at its office at 000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised (the "Aggregate Exercise
Price").
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. Within five (5)
business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a Warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the request of
the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
4. The Company, until the expiration or termination of this Warrant, shall
reserve and keep available out of its authorized and unissued common stock,
solely for the purpose of providing for the exercise of the rights to purchase
all Warrant Shares granted pursuant to this Warrant and all other Common Stock
Warrants, such number of shares of common stock as shall, from time to time, be
sufficient therefor. The Company covenants that all shares of stock issuable
upon exercise of this Warrant, upon receipt by the Company of the full Exercise
Price therefor, shall be validly issued, fully paid, nonassessable, and free of
preemptive rights.
- 37 -
5. The issuance of any Warrant, Warrant Shares or other securities upon
the exercise of this Warrant, and the delivery of certificates or other
instruments representing such Warrant Shares or other securities, except as
otherwise required by law, shall be made without charge to the Holder for any
tax or other charge in respect of such issuance, other than applicable transfer
taxes. Notwithstanding anything contained herein, all applicable transfer taxes
shall be borne by the Holder.
6. The number of Warrant Shares and the Exercise Price shall be subject to
adjustment from time to time as provided in this Section. There shall be no
adjustment hereunder with respect to (A) the issuance or sale of shares or
options to purchase shares of the Company Common Stock to employees, officers,
directors and consultants of the Company and its subsidiaries (as such number of
shares is appropriately adjusted for subsequent stock splits, stock
combinations, stock dividends and racapitalizations) pursuant to plans or
arrangements approved by the Company's Board of Directors; (B) the issue or sale
of Common Stock to other entities or the owners thereof in connection with a
merger or acquisition by the Company; (C) the issue and sale to banks, savings
and loan associations, equipment lessors or other similar lending institutions
in connection with such entities providing working capital credit facilities or
equipment financing to the Company; (D) the issuance of Common Stock to
Crossover Ventures, Inc. or its successors or assigns under the terms of the
equity line of credit arrangement, as such may be amended from time to time, and
(E) the issuance of Common Stock upon conversion of any shares of any series of
the Company's Preferred Stock, the Company's Series A Secured Convertible
Debentures due 2006 or the Warrants.
6.1 If during the period from the date hereof through the Expiration Date
(the "Exercise Period"), (a) the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, then, following the
dated upon which such subdivision becomes effective, the Exercise Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
exercise of this Warrant shall be increased in proportion to such increase in
outstanding shares, and (b) if the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, then, following the
date upon which such combination becomes effective, the Exercise Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
exercise of this Warrant shall be decreased in proportion to such decrease in
outstanding shares.
6.2 The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be deemed to involve
a subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number or amount of securities and/or cash and/or other consideration
outstanding immediately thereafter, and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, within the meaning of Section 6.1.
- 38 -
6.3 The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be deemed to involve
a subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number or amount of securities and/or cash and/or other consideration
outstanding immediately thereafter, and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, within the meaning of Section 6.1.
6.4 If during the Exercise Period, the Company issues or sells any
Convertible Securities (as defined below) or any shares of Common Stock for a
consideration per share less than Fair Market Value (as defined below) of the
Common Stock determined on the date of such issuance or sale, then immediately
upon such issue or sale or deemed issue or sale, the Exercise Price shall be
reduced to the Exercise Price determined by dividing (A) the sum of (i) the
product derived by multiplying the Exercise Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock Deemed Outstanding
(as defined below) immediately prior to such issue or sale, plus (ii) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. In such instances, the number of Warrant Shares shall be
increased by multiplying such number of shares by a fraction, of which the
numerator will be the Exercise Price in effect immediately prior to such issue
or sale, and the denominator will be the Exercise Price immediately after such
issue or sale. "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding assuming exercise
and/or conversion of the Company's Options (as defined below) and Convertible
Securities, whether or not such Options or Convertible Securities are actually
exercisable at such time. "Options" means any rights, warrants or options sold
or granted by the Company to subscribe for or purchase Common Stock or
Convertible Securities. "Convertible Securities" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock. "Fair
Market Value" means, as of any date, the value of a share of Common Stock,
determined as follows: (i) if such Common Stock is then listed on a national
securities exchange, its closing price on the date of determination on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, as reported in The Wall Street Journal; (ii) if such Common
Stock is then quoted on the Nasdaq National Market, its closing price on the
Nasdaq National Market on the date of determination, as reported in The Wall
Street Journal; (iii) if such Common Stock is not quoted on the Nasdaq National
Market nor listed or admitted to trading on a national securities exchange, the
average of the closing bid and asked prices on the date of determination, as
reported in The Wall Street Journal; or (iv) if none of the foregoing is
applicable, by the Board of Directors of the Company acting in good faith.
6.5 In the event of any capital reorganization of the Company, any
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
any sale or transfer to another person or entity of the property of the Company
as an entirety or substantially as an entirety, or any consolidation or merger
of the
- 39 -
Company with or into another corporation (where the Company is not the surviving
corporation or where there is a change in or distribution with respect to the
Common Stock), this Warrant shall after such reorganization, reclassification,
consolidation, transfer or merger be exercisable for the kind and number of
shares of stock or other securities or property of the Company or of the
successor corporation resulting from such consolidation, transfer or surviving
such merger, if any, to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon exercise of this Warrant would
have been entitled upon such reorganization, reclassification, consolidation,
transfer or merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations, transfers, or
mergers.
6.6 Notice of Adjustment of Conversion Price. Whenever the Exercise Price
is adjusted as herein provided:
(i) the Company shall compute the adjusted Exercise Price in
accordance with this Section 6 and shall prepare a certificate signed by an
officer of the Company, setting forth the adjusted Exercise Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency maintained for
this Warrant; and
(ii) a notice stating that the Exercise Price has been adjusted and
setting forth the adjusted Exercise Price shall forthwith be prepared by the
Company, and as soon as practicable after it is prepared, such notice shall be
mailed by the Company at its expense to the Holder at its last address as it
shall appear in the warrant register.
6.7 Other Dilutive Events. If any event occurs as to which the provisions
of this Section 6 are not strictly applicable or, if strictly applicable, would
not fairly and adequately protect the conversion rights of the Holder in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary to protect such purchase rights as aforesaid; provided that
no such adjustment will increase the Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 6.
7. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
8. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
- 40 -
9. This Warrant shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the rules governing the
conflicts of laws.
10. The parties hereby irrevocably consent to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with,
or simultaneously with this Warrant, or a breach of this Warrant.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be duly
executed by its officers thereunto duly authorized as of the date and year set
forth below.
Dated: August 22, 2002
ON2 TECHNOLOGIES, INC.
By:_________________________________
Name:
Title:
- 41 -
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns, and transfers unto __________________ a Warrant to purchase __________
shares of Common Stock, par value $0.01 per share, of On2 Technologies, Inc.
(the "Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: _________________
Signature:________________
Printed Name:_____________
Signature Guaranteed:__________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as written
upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- 42 -
ELECTION TO EXERCISE
To: On2 Technologies, Inc.
__________________
__________________
The undersigned hereby exercises his or its rights to purchase _______ Warrant
Shares covered by the within Warrant and tenders payment herewith in the amount
of $_________ in accordance with the terms thereof, certifies that he owns this
Warrant free and clear of any and all claims, liens and/or encumbrances and
requests that certificates for such securities be issued in the name of, and
delivered to:
___________________________
___________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: ____________________
Name:_____________________________
(Print)
Address:___________________________
_________________________________
(Signature)
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), NOR UNDER ANY
STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED BY THE PROVISIONS OF
REGULATION S UNDER THE ACT OR PURSUANT TO REGISTRATION UNDER THE ACT OR AN
AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS
- 43 -
INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
ACT.
EXHIBIT D
[Form of Investors' Rights Agreement]
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (this "AGREEMENT") is made as of
__________, by and among On2 Technologies, Inc. (the "COMPANY"), a Delaware
corporation, and each of the Investors (as defined in the Subscription Agreement
(as defined below)). Certain capitalized terms used in this Agreement without
definition shall have the meanings given them in Section 13 hereof.
PREAMBLE
The Holders are acquiring ___________ principal amount of Series A Secured
Convertible Debentures due 2006 (the "DEBENTURES") that are convertible into
shares of the Company's Common Stock, $0.01 par value per share (the "COMMON
STOCK"), and warrants (the "WARRANTS") to purchase __________ shares of the
Company's Common Stock, pursuant to the Unit Subscription and Security Agreement
(the "SUBSCRIPTION AGREEMENT"), dated as of the date hereof, between the Company
and the Holders.
Pursuant to the Subscription Agreement, the Company and the Holders have
agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, the Company and the Holders hereby agree as follows:
11. Restrictions on Transferability. None of the Restricted Securities may
be sold, assigned, transferred, pledged or otherwise disposed of, whether or not
for value, except in compliance with the terms and conditions of this Agreement.
At such time as the Restricted Securities cease to be Restricted Securities
under the terms of this Agreement, the provisions of this Agreement shall no
longer apply to the securities that theretofore were Restricted Securities.
12. Restrictive Legend.
(a) Each certificate representing the Debentures, the Common Stock into
which such Debentures are convertible, the Warrants, or the Common Stock issued
upon exercise of the
- 44 -
Warrants shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws or otherwise):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY
NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
AS PERMITTED BY THE PROVISIONS OF REGULATION S UNDER THE ACT OR PURSUANT TO
REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION FROM REGISTRATION.
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
IN COMPLIANCE WITH THE ACT.
THE SALE, ASSIGNMENT, TRANSFER, PLEDGE AND OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE INVESTOR'S
RIGHTS AGREEMENT (THE "INVESTOR'S RIGHTS AGREEMENT"), DATED AUGUST 22, 2002.
A COPY OF THE INVESTOR'S RIGHTS AGREEMENT IS ON FILE WITH THE CORPORATE
SECRETARY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. A COPY THEREOF
MAY BE OBTAINED AT NO COST UPON WRITTEN REQUEST THEREFOR MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE CORPORATE SECRETARY AT THE PRINCIPAL
OFFICES OF THE COMPANY.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received either (i) a written opinion of legal counsel to the Holder who
shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act or (ii) a "no-action" letter from
the Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto; provided, that no such opinion of
counsel shall be required for a transfer by a Holder of Restricted Securities to
an Affiliate if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an original Holder of
Restricted Securities hereunder.
(b) Stop Transfer Instructions. Each Holder consents to the Company's
making a notation on its records and giving instructions to any transfer agent
of the Restricted Securities in order to implement the restrictions on transfer
established in this Agreement. The Company agrees to, upon the request of a
Holder and as expeditiously as possible, make a notation on its records and give
instructions to any transfer agent of the Restricted Securities to cease to
implement the restrictions on transfer established in this Agreement, when such
restrictions cease in accordance with the terms of this Agreement or applicable
securities law.
13. Notice and Other Requirements of Transfer. The Holders will be
permitted to sell, assign, transfer, pledge or otherwise dispose of any
Restricted Securities if and only if:
(a) the intended sale, assignment, transfer, pledge or
other disposition is permitted by the other provisions of this
Agreement; or
- 45 -
(b) there is in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement;
or
(c) (i) the proposed sale, assignment, transfer, pledge or
other disposition is to an Affiliate, and (ii) the Affiliate
transferee, as a condition to the effectiveness of such sale,
assignment, transfer, pledge or other disposition, has executed a
counterpart of this Agreement expressly assuming the obligations of
such Holder under this Agreement; or
a. (i) the Holder has notified the Company of the proposed
disposition and has furnished the Company with a statement of the
circumstances surrounding the proposed sale, pledge or other
disposition for value, including the name and address of the
intended transferee, the residence of the transferee, a brief
description of the business of the transferee and identifying the
Restricted Securities with respect to which such rights are being
assigned, and (ii) the intended transferee, as a condition to the
effectiveness of such disposition, has executed a counterpart of
this Agreement expressly assuming the obligations of the Holder
under this Agreement; and, if the Company requests within five
Business Days of receipt of the notice provided for in (i) the
Holder shall also furnish the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such intended
disposition does not require registration of such shares under the
Securities Act.
14. Piggyback Registration.
(a) Notice to Holders Required. If at any time or from time to time the
Company shall determine to register any shares of Common Stock for its own
account or the account of any person who holds securities of the Company that
are "restricted securities" under Rule 144, other than (a) a registration on
Form S-4 or S-8 or another form not generally available for registering the
Restricted Securities for sale to the public or (b) any registration comprised
in whole or in substantial part of shares underlying stock options or restricted
shares issued under an incentive compensation plan that has been adopted by the
Company or its predecessor, the Company will give to each Holder notice as soon
as practicable prior to filing the registration statement and include in such
registration all Registrable Securities specified in one or more written
requests which have been made within 15 Business Days after receipt of such
written notice from the Company by each Holder, except as set forth in Section
4.2
(b) Registered Public Offering Involving an Underwriting. If the
registration of shares of Common Stock is for a registered public offering
involving an underwritten offering, the Company shall so advise each Holder as a
part of the written notice given pursuant to Section 4.1. In such event, the
right of each Holder to registration pursuant to this Section shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of each Holder's Registrable Securities in the underwriting to the
extent provided herein. If any Holder proposes to distribute his securities
through such underwriting, the Holder shall (together with the Company and the
other holders of Common Stock distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company. The
Company will use its
- 46 -
reasonable best efforts to include the Holder's Registrable Securities, pro rata
with all other securities of holders of piggyback registration rights, in any
such underwritten offering. Notwithstanding any provision of Section 4.1, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the underwriting or may limit
the number of Registrable Securities to be included in such registration. The
Company shall so advise the Holders, and the number of shares of Registrable
Securities and other securities that may be included in the registration and
underwriting shall be allocated among each Holder and all other holders of
Common Stock that hold rights granted by the Company to cause shares of Common
Stock held by them to be included in such registration or underwriting, in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by the Holder and each other such holder that are requested to
be included in the registration or underwriting. To facilitate the allocation of
shares in accordance with the above provisions, the Company or the underwriter
may round the number of shares allocated to each Holder to the nearest one
hundred shares. If any Holder disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to the Company. In the
event of any such withdrawal, the Company will include in any such registration
in lieu thereof, on a pro rata basis, any additional shares of Registrable
Securities which were requested to be included by a Holder and any other shares
requested to be included by any other piggyback right holders, which were
excluded pursuant to the above-described underwriter limitation, up to the
maximum set by such underwriter.
(c) The Company's obligation to file a registration statement under
Section 4, or to cause a registration statement to become and remain effective
under such Section, shall be suspended for a period not to exceed 90 days (and
for periods not exceeding, in the aggregate, 120 days in any 12-month period) if
there exists at the time material non-public information relating to the Company
which, in the reasonable opinion of the Board of Directors of the Company,
should not be disclosed.
15. Demand Registration
(a) Notice of Registration. At any time after September 15, 2002, Holders
representing at least 60% of the shares of Common Stock underlying the
Debentures may demand that a registration statement be filed with the Commission
within 6 months days after the date on which the Company has received such
request, subject to the provisions of this Section 5. Subject to the terms and
conditions set forth below in this Section 5.1 and Sections 5.2 through 5.3 and
Section 7, upon the Company's receipt from the requisite Holders of a written
request that the Company effect a registration under the Securities Act with
respect to its Registrable Securities, the Company will, as expeditiously as
possible, notify the Holders in writing of such request and use its diligent
best efforts to effect all such registrations (including, without limitation,
the execution of an undertaking to file post-effective amendments and
appropriate qualifications and approvals under the laws and regulations
applicable to the Company of any applicable governmental agencies and
authorities, including applicable blue sky or other state securities laws) as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of the Registrable Securities as are specified in such
request, provided, that (a) the Holders may not make their request within 90
days following the effectiveness of any registered public offering of Common
Stock, unless prohibited by applicable securities laws; (b)
- 47 -
before filing any such registration statement or any amendments or supplements
thereto, the Company will (i) furnish to the Holders of Registrable Securities
which are to be included in such registration copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Holders and their counsel, and (ii) give the Holders of Registrable Securities
to be included in such registration statement and their representatives the
opportunity to conduct a reasonable investigation of the records and business of
the Company and to participate in the preparation of any such registration
statement or any amendments or supplements thereto; (c) the Company shall not be
obligated to take any action to effect such registration pursuant to this
Section 5.1 after the Company has effected one such registration pursuant to
this Section 5.1 at the request of the Holder; provided, that such registration
has been declared or ordered effective by the Commission and, if the method of
distribution is a registered public offering involving an underwritten offering,
all such shares registered thereby shall have been sold pursuant thereto; and
(d) the Company shall not be required to file any registration statement under
this Section 5.1 unless the holders of at least 33% of the issued and
outstanding Registrable Securities (taken as a whole) shall have demanded in
writing that the Company file a registration statement under this Section 5.1.
With respect to any registration requested pursuant to this Section 5.1, the
Company may include in such registration any other shares of Common Stock,
subject to the restrictions set forth in Section 5.3, as to which it is
obligated to include such shares pursuant to agreements requiring such
registration.
(b) Registration Statement. Subject to Section 5.1 above and the other
terms and conditions contained herein, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practical, but in any event within 30 days after receipt of the request
of the Holders; provided, that if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment and upon the consent of a majority of the Board of Directors it
would require the disclosure of material non-public information about the
Company, the disclosure of which could be seriously detrimental to the business
or financial condition of the Company or to negotiations in which it is engaged
for such registration statement to be filed at the date filing would be required
under Section 5.1 and it is therefore desirable to defer the filing of such
registration statement, in which case the Company shall have an additional
period of not more than 60 days within which to file such registration
statement.
(c) Registered Public Offering Involving an Underwriting. If the Holders
intend to distribute the Registrable Securities covered by their request under
Section 5.1 by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to Section 5.1. In such event, the Holders
shall negotiate in good faith with a nationally recognized underwriter or
underwriters selected by the Holders and reasonably satisfactory to the Company
with regard to the underwriting of such requested registration. The right of the
Holders to registration pursuant to this Section 5.3 shall be conditioned upon
participation by all Holders in such underwriting to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected pursuant to this
Section 5.3. Notwithstanding any other provision of this Section 5.3, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) limit the number of Registrable Securities to be
included in the registration and underwriting. The
- 48 -
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following priority:
first, among all Holders, and any reduction among such Holders shall be pro rata
among all such persons and, for purposes of making any such reduction, each
Holder which is a partnership, together with the affiliates, partners,
employees, retired partners and retired employees of such Holder, the estates
and family members of any such partners, employees, retired partners and retired
employees and of their spouses, and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "person," and any pro rata
reduction with respect to such "person" shall be based upon the aggregate number
of Registrable Securities owned by all entities and individuals included as such
"person", as defined in this sentence (and the aggregate number so allocated to
such "person" shall be allocated among the entities and individuals included in
such "person" in such manner as such Holder may reasonably determine); and
second, to the Company, and third, among all other stockholders in proportion,
as nearly as practicable, to the respective amounts of securities which they had
requested to be included in such registration at the time of filing the
Registration Statement. To facilitate the allocation of shares in accordance
with the above provisions, the underwriter may round the number of shares
allocated to the Holders to the nearest one hundred shares. If any Holder of
Registrable Securities disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company, the underwriter
and the other Holders. In the event of any such withdrawal, the Company will
include in any such registration in lieu thereof any additional shares of
Registrable Securities which were requested to be included by a Holder and which
were excluded pursuant to the above-described underwriter limitation up to the
maximum set by such underwriter.
16. Expenses of Registration. The Company will bear all reasonable
expenses incurred in connection with registrations pursuant to Section 4 and
Section 5, including without limitation all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and independent accounts for the Company and expenses of any special
audits of the Company's financial statements incidental to or required by such
registration, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars' fees, but the Company
will not pay underwriters' fees, discounts or commissions relating to the
Registrable Securities or any fees or expenses legal counsel for any or all of
the Holders.
17. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 4 or 5 to use its best efforts to effect the
registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) furnish to a single representative of the Holders, who shall
initially be Abanat Limited or such other person or entity as the Company is
instructed in writing (the "Representative") and to each managing underwriter,
if any, a reasonable time in advance of their filing with the SEC any
registration statement, amendment or supplement thereto, and any prospectus used
in connection therewith, and the Representative shall have the opportunity to
object to any information pertaining to it and its plan of distribution that is
contained therein and the Company will make the corrections reasonably required
by such Representative with respect to such information prior to filing any such
registration statement or any amendment or supplement thereto, and if requested
in writing by the Representative, and furnish a copy of any
- 49 -
and all transmittal letters or other correspondence with the SEC or any other
governmental agency or self-regulatory body or other body having jurisdiction
(including any domestic or foreign securities exchange) relating to such
offering;
(b) prepare and file with the SEC a registration statement (which,
in the case of a requested registration pursuant to Section 5, shall be on a
registration statement form which is sufficient to permit the sale or other
disposition of any or all shares of Common Stock to be included therein in
accordance with the intended method of sale or other distribution stated by the
initiating Holders, including a "shelf" registration statement under Rule 415
under the Securities Act or any successor provision) with respect to such
securities and use its best efforts to cause such registration statement to
become effective as soon as practicable and to remain effective for the period
of the distribution contemplated thereby (determined as hereinafter provided);
(c) furnish to each seller and to each underwriter such number of
copies of the registration statements, each amendment and supplement thereto
(and, if requested in writing, all exhibits thereto and documents incorporated
by reference therein) and the prospectus included therein (including each
preliminary prospectus and prospectus) and any other prospectus filed under Rule
424 promulgated under the Securities Act relating to the Registrable Securities
and such other documents as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Registrable Securities
covered by such registration statement;
(d) after the filing of the registration statement, on the day of
receipt of knowledge thereof notify each seller of Registrable Securities and
each managing underwriter, if any, of any stop order issued or, to the knowledge
of the Company, threatened to be issued by the SEC and promptly take all
reasonably necessary actions to prevent the entry of such stop order or to
remove it if entered;
(e) use its commercially reasonable best efforts to register or
qualify the Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of any state as the sellers of Registrable
Securities, or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request, and use its commercially reason-able best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and to keep such registrations, qualifications, permits
and consents in effect for so long as such registration statement remains in
effect and to take any other action which may be reasonably necessary to enable
the seller of Registrable Securities to consummate the disposition in such
jurisdictions of such securities; provided, however, that the Company shall not
for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(f) use its commercially reasonable best efforts to list the
Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed;
(g) furnish, in a timely fashion, unlegended certificates
representing ownership of the Registrable Securities being sold in such
denominations as shall be requested by the seller or the lead underwriter;
- 50 -
(h) on the day of receipt of knowledge thereof inform each seller
and the managing underwriter or underwriters, if any, (1) of the date on which a
registration statement or any post-effective amendment thereto has been filed
and when the same has become effective and, if applicable, of the date of filing
a Rule 430A prospectus, or (2) of the receipt by the Company of any notification
with respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws of any
jurisdiction and as soon as practicable after receipt of knowledge thereof
inform each seller and the managing underwriters, if any, of any written
comments from the SEC with respect to any filing referred to in clause (1) and
of any request by the SEC, any securities exchange, government agency,
self-regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or preliminary prospectus or prospectus
included therein or any offering memorandum or other offering document relating
to such offering.
(i) on the day of receipt of knowledge thereof notify the
Representative and each underwriter under such registration statement, at any
time when a prospectus relating thereto is required by law to be delivered in
connection with sales by an underwriter or dealer, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and as promptly as practicable make available to each
seller and to each managing underwriter, if any, any such supplement or
amendment; in the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective as provided in Section 7(b) hereof by the number of days during the
period from and including the date of the giving of such notice to the date when
the Company shall make available to such sellers such supplemented or amended
prospectus;
(j) upon written request, make available for inspection by each
seller of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply information
reason-ably requested by such seller, underwriter, attorney, accountant or agent
in connection with such registration statement;
(k) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the sale of such securities,
including having one of its senior executives appear at no more than two
"roadshow" meetings to be held in New York City;
(l) provide a transfer agent and registrar, and a CUSIP number, for
all Registrable Securities covered by such registration statement not later than
the effective date of such registration statement; and
(m) provide signed counterparts, addressed to each such Holder, of
an opinion of the Company's counsel and a "cold comfort" letter of the Company's
independent certified
- 51 -
public accountants with respect to the matters customarily covered in such
documents delivered to underwriters in underwritten public offerings.
In connection with each registration hereunder, the sellers of
Registrable Securities will furnish to the Company in writing such information
with respect to themselves and the proposed distribution by them as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws.
In connection with each registration pursuant to Sections 4 or 5
covering an underwritten public offering, the Company and each Holder agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
For purposes of Section 7(b) hereof, the period of distribution of
Registrable Securities in a firm commitment underwritten public offering shall
be deemed to extend until the earlier of the sale of all Registrable Securities
covered thereby or twelve months after the effective date thereof, and the
period of distribution of Registrable Securities in any other registration shall
be deemed to extend until the earlier of the sale of all Registrable Securities-
covered thereby or nine months after the effective date thereof.
18. Indemnification.
(a) Indemnity by the Company. If the Company registers any Registrable
Securities held by the Holder under the Securities Act pursuant to Section 4 or
Section 5, the Company will indemnify and hold harmless the Holder, and each
other person, if any, who controls the Holder, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Holder, the underwriter, if any, or such controlling
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act or any state securities
law applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, and will reimburse the Holder
and the underwriter, their respective officers, directors and partners, and each
person controlling the Holder and the underwriter, for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by the Holder or the underwriter specifically for use
therein.
- 52 -
(b) Indemnity by the Holder. Each Holder will, if Registrable Securities
held by or issuable to the Holder are included in the securities as to which
such registration is being effected, indemnify and hold harmless the Company,
each of its directors, each officer who signs the registration statement, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company and each underwriter within the
meaning of the Securities Act, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other document
made in writing by the Holder, or any omission (or alleged omission) by the
Holder to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred by them in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by the Holder specifically for use
therein; provided, that the total amount for which the Holder, its officers,
directors and partners, and any person controlling the Holder, shall be liable
under this Section 8.2 shall not in any event exceed the proceeds (net of
underwriting discounts and commissions) received by the Holder from the sale of
Registrable Securities sold by the Holder in such registration.
(c) Notice by the Indemnified Party. Each party entitled to
indemnification under this Section 8 (the "INDEMNIFIED PARTY") shall give notice
to the party required to provide indemnification (the "INDEMNIFYING PARTY")
promptly after such Indemnified Party has actual knowledge of any claims as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom. An Indemnified
Party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding, provided
that in no event shall the Indemnifying Party be required to pay the fees and
expenses of more than one such separate counsel for all Indemnified Parties. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
- 53 -
(d) Contribution. If the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount that the Holder shall be obligated to
contribute pursuant to this Section 8.4 shall be limited to an amount equal to
the proceeds to the Holder of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute (less
the aggregate amount of any damages which the Holder has otherwise been required
to pay in respect of such loss, claim, damage, liability or action or any
substantially similar loss, claim, damage, liability or action arising from the
sale of such Registrable Securities).
(e) Survival of Indemnity. The indemnification and contribution provided
by this Section shall be a continuing right to indemnification and shall survive
the registration and sale of any securities by any person entitled to
indemnification under this Agreement.
19. Lockup Agreement. In consideration for the Company's performance of
its obligations under this Agreement, the Holder will, in connection with any
registration of any Registrable Securities in an underwritten offering, at the
request of the Company or the underwriters managing any underwritten offering of
the Company's securities, agree not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any Restricted
Securities (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 90 days) from the effective date of such
registration as the Company and the underwriters may specify, so long as
similarly situated stockholders of the Company are bound by a comparable
obligation.
20. Holders' Cooperation.
(a) Information Regarding Holders. Each Holder shall promptly furnish to
the Company such information regarding the Holder and the distribution proposed
by the Holder as the Company may request in writing and as shall be required in
connection with any registration referred to herein.
(b) Obligations of the Holders. The Holders will not (until further notice
by the Company) effect sales thereof (or deliver a prospectus to any purchaser)
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update a registration statement or
prospectus. At the end of the period during which the Company is obligated to
keep any registration statement filed under Section 4 or Section 5
- 54 -
current and effective as required by applicable law, the Holders shall
discontinue sales of shares pursuant to such registration statement upon receipt
of notice from the Company of its intention to remove from registration the
shares of Registrable Securities covered by such registration statement that
remain unsold, and the Holders shall notify the Company of the number of such
shares registered that remain unsold immediately upon receipt of such notice
from the Company.
21. Rule 144. With a view to making available to the Holders the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144; and
(ii) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
22. Representations and Warranties of the Company. The Company
represents and warrants to the Holder as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation or Bylaws of the Company or any
provision of any indenture, agreement or other instrument to which it or any of
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) the availability of equitable remedies as such remedies may be limited by
equitable principles of general applicability (regardless of whether enforcement
is sought in a proceeding in equity or at law).
23. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "AFFILIATE" shall have the meaning given to it under Rule
405 of the Securities Act.
(b) "BUSINESS DAY" means any day other than a Saturday, Sunday
or a day on which commercial banks in New York City are required or
authorized to close.
- 55 -
(c) "COMMISSION" shall mean the U. S. Securities and Exchange
Commission, or any other federal agency at the time administering
the Securities Act.
(d) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar United States statute and the rules
and regulations thereunder, all as the same shall be in effect at
the time.
(e) "HOLDER" or "HOLDERS" shall mean each of the Investors (as
defined in the Subscription Agreement) or an individual Investor (as
defined in the Subscription Agreement), as the case may be, and, if
applicable, any other person who holds Restricted Securities and who
has assumed the obligations of the Holder under this Agreement
pursuant to Section 3(d).
(f) "REGISTER," "REGISTERED" and "REGISTRATION" shall refer to
a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration
or ordering of the effectiveness of such registration statement, and
compliance with applicable state securities laws of such states in
which the Holder notifies the Company of its intention to offer
Registrable Securities.
(g) "REGISTRABLE SECURITIES" shall mean any shares of Common
Stock into which the Debentures are convertible or were converted
and any shares of Common Stock issuable or issued upon due exercise
of the Warrants and New Warrants; provided, however, that
Registrable Securities shall only be treated as Registrable
Securities if and so long as, they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution
or a public securities transaction or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of
the Securities Act so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of
such sale.
(h) "RESTRICTED SECURITIES" shall mean the Debenture, any
shares of Common Stock into which the Debentures are convertible,
the Warrants, the New Warrants and any shares of Common Stock
issuable upon due exercise of the Warrants and the New Warrants, in
each case only to the extent the same have not been sold to the
public. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when (i) a registration
statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall
have been disposed of under such registration statement, (ii) such
securities shall have become eligible for resale pursuant to Rule
144(k) and any restrictive legend on certificates representing such
securities shall have been removed, (iii) such securities shall have
been otherwise transferred or disposed of, and (x) new certificates
therefore not bearing a legend restricting further transfer shall
have been delivered by the Company, and (y) subsequent transfer or
disposition of them shall not require their registration or
qualification under the Securities Act or any similar state law then
in force or compliance with Rule 144, or (iv) such securities shall
have ceased to
- 56 -
be outstanding. Notwithstanding the foregoing, Restricted Securities
shall not include otherwise Restricted Securities (i) sold by a
person in a transaction in which his rights under this Agreement are
not properly assigned; or (ii) (A) sold to or through a broker or
dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities
Act under Section 4(1) thereof if all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon
the consummation of such sale.
(i) "RULE 144" shall mean Rule 144 under the Securities Act or
any successor or similar rule as may be enacted by the Commission
from time to time.
(j) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar United States statute and the rules and
regulations thereunder, all as the same shall be in effect at the
time.
24. Miscellaneous.
(a) Amendments. This Agreement may be amended only by a written
instrument executed by the Holders and the Company.
(b) Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute a single instrument.
(c) Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to be delivered when received by certified mail, postage prepaid, return
receipt requested, when delivered by an expedited delivery service or when sent
by facsimile or e-mail after confirmation. All notices shall be directed to the
parties at the respective addresses set forth below or to such other address as
either party may, from time to time, designate by notice to the other party:
(d) Assignability. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, duties or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other parties hereto, except that
vested rights to receive payment or to initiate legal action with respect to
causes of action that have accrued hereunder shall be assignable by devise,
descent or operation of law.
(e) Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
- 57 -
(f) Governing Law; Venue. (a) This Agreement shall be governed by and
construed under the laws of the State of New York without regard to principles
of conflict of law. Each of the parties hereby (i) irrevocably consents and
agrees that any legal or equitable action or proceeding arising under or in
connection with this Agreement shall be brought exclusively in the Federal or
state courts sitting in New York, New York, and any court to which an appeal may
be taken in any such litigation, and (ii) by execution and delivery of this
Agreement, irrevocably submits to and accepts, with respect to any such action
or proceeding, for itself and in respect of its properties and assets, generally
and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably
waives any and all rights such party may now or hereafter have to object to such
jurisdiction.
(b) Each of the Company and the other parties hereto waives its
right to a jury trial with respect to any action or claim arising out of any
dispute in connection with this agreement, any rights or obligations hereunder
or the performance of such rights and obligations. Except as prohibited by law,
each of the Company and the other parties hereto hereby waives any right it may
have to claim or recover in any litigation referred to in the preceding sentence
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. Each of the Company and other parties
hereto (x) certifies that no representative, agent or attorney of any party
hereto has represented, expressly or otherwise, that such party would not, in
the event of litigation, seek to enforce the foregoing waivers and (y)
acknowledges that the parties hereto have been induced to enter into this
Agreement by, among other things, the waivers and certifications contained
herein.
[Signature Page Follows]
- 58 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
THE HOLDERS:
- 59 -
