Exhibit 10.2
SUBSCRIPTION AGREEMENT
June 15, 2001
Ambient Corporation
Ladies and Gentlemen:
1 The undersigned hereby tenders this subscription and applies for the purchase
of the number of shares of Common Stock, par value $0.001 (hereinafter, the
"Common Stock") of Ambient Corporation (the "Company") set forth on the
signature page of this agreement, at a purchase price of $1.00 per share (the
"Shares").
Together with this Subscription Agreement, the undersigned is delivering
to the Company, a check payable to "AMBIENT CORPORATION " in the full amount of
the purchase price for the Shares which the undersigned is subscribing for
pursuant hereto or funds by wire transfer as instructed by the Company.
2. Registration Rights (i) Within 90 days following the closing of the
undersigned's investment hereunder, the Company will include in a registration
statement (the "Registration Statement") which the Company will prepare and file
with the SEC under the Act the Shares purchased hereunder (collectively, the
"Securities"). The undersigned shall pay any and all underwriting commissions,
if any, in connection with the re-sale by the undersigned of the Securities, but
the Company shall bear all fees and expenses attendant to registering the
Securities under federal, state and any other securities laws, and any required
filings with the NASD, including, without limitation, all printing costs.
(ii) The Company shall use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. The Company shall keep effective and
current any registration or qualification contemplated by this Agreement and
shall from time to time amend or supplement each applicable registration
statement, preliminary prospectus, final prospectus, application, document, and
communication in order to maintain the Registration Statement effective and
current for so long as the Securities are not transferable under Rule 144(k)
under the Act; provided, however, that, if the Company is required to keep any
such registration or qualification in effect with respect to securities other
than the Securities beyond such period, the Company shall keep such registration
or qualification in effect as it relates to the Securities for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities;
(iii) The Company shall use its best efforts to cause the Securities to be
registered or qualified for sale under the securities or blue sky laws of such
jurisdictions as the Holder(s) may reasonably request; provided, however, that
the Company shall not by reason of this Article be required to qualify to do
business in any state in which it is not otherwise required to qualify to do
business or to file a general consent to service of process in such
jurisdiction;
(iv) Upon request, the Company shall furnish to the undersigned and its
counsel copies of all registration statements and amendments and supplements
thereto, each preliminary and final prospectus and amendment and supplement
thereto, comment letters from the Commission, the National Association of
Securities Dealers ("NASD") and state securities commissions, and such other
documents as the undersigned shall reasonably request to facilitate the
disposition of the Securities included in such registration;
(v) The Company will indemnify and hold harmless the undersigned, and each
partner, officer, director, and controlling person of thereof, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement against all claims, losses, damages and liabilities (or actions
in respect thereof under the Act, the Exchange Act, common law or otherwise
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like as
amended and supplemented) incident to any such registration, qualification or
compliance, or based on any 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 Act or any state securities or blue sky laws
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will promptly reimburse the undersigned, and each partner, officer,
director, and each controlling person thereof, for any legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, that the Company will not be
liable to undersigned or any partner, officer, director and controlling person
thereof, to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission contained in
information furnished to the Company by the undersigned in writing specifically
for use therein.
(vi) In connection with any registration statement in which a holder of
Securities is participating, each such holder shall furnish to the Company in
writing such information and affidavits as the Company and any underwriter
reasonably requests for use in connection with any such registration statement
or prospectus and shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder.
(vii) The undersigned will indemnify and hold harmless each other Holder
(the "Indemnitee"), and each partner, officer, director, and controlling person
of such Indemnitee against all claims, losses, damages and liabilities (or
actions in respect thereof under the Act, the Exchange Act, common law or
otherwise) arising out of or based on any untrue statement or omission contained
in information furnished by the undersigned in writing specifically for use by
the Company in connection with this offering and relied on by the Company and
the Indemnitee; provided, however, that the indemnification set forth in this
subparagraph (vii)) shall be limited to the amount equal to the gross proceeds
realized by the undersigned from the sale of such securities registered pursuant
to such registration statement.
(viii) If the indemnification provided for in subparagraphs (vi) and (vii)
above 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 hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such of loss, liability, claim, damage,
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
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of competent jurisdiction 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
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information supplied by the indemnifying party or by the indemnified party and
the party's relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission. Notwithstanding the provisions
of this subparagraph (viii), the undersigned shall not be required to contribute
any amounts in excess of the amount equal to the gross proceeds realized by such
Holder from the sale of the securities registered pursuant to such registration
statement.
(ix) With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
(as that term is used in Rule 144 under the Act) to the public without
registration, the Company agrees to:
(A) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act;
(B) use its reasonable efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the Act and
the Exchange Act at any time after it has become subject to such reporting
requirements; and
(C) so long as the undersigned owns any restricted Securities, furnish to
such undersigned promptly upon a written request by the undersigned as to the
Company's compliance with the reporting requirements of Rule 144 (at any time
from and after ninety days following the effective date of the first
registration statement filed by the Company for an offering of Securities to the
general public), and of the Act and Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed as the undersigned may reasonably request in availing himself, herself or
itself of any rule or regulation of the Commission allowing the Holder to sell
any such Securities without registration.
(x) Notwithstanding the forgoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the undersigned in writing of the existence of a Potential Material
Event, the holders shall not offer or sell any Securities, or engage in any
other transaction involving or relating to the Securities, from the time of the
giving of notice with respect to a Potential Material Event until either the
events or circumstances comprising such Potential Material Event have been
disclosed to the public or no longer constitute a Potential Material Event;
provided however, that the Company may not so suspend the right to such holders
of Securities during the periods the Registration Statement is required to be in
effect other than during a Permitted Suspension Period. The term "Permitted
Suspension Period" means no more than two (2) suspension periods during any
consecutive 12-month period which suspension periods, in the aggregate, do not
exceed fifty (50) days, provided, however, that no one such suspension period
shall either (i) be for more than twenty (20) days or (ii) begin less than ten
(10) business days after the last day of the preceding suspension (whether or
not such last day was during or after a Permitted Suspension Period) and the
term "Potential Material Event" shall mean any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company, following consultation with Company
counsel, that disclosure of such information in the registration statement would
be detrimental to the business and affairs of the Company; or (ii) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company following consultation
with Company counsel, be adversely affected by disclosure in a registration
statement at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information. Notwithstanding anything to the contrary contained herein, the
provisions hereof shall not apply to the extent that any of the Securities then
included in such Registration Statement
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may be sold or otherwise transferred under Rule 144 under the Act or are
transferred in a private non-brokerage transaction.
(xi) In the event that the Registration Statement is not declared
effective within the earlier of (A) 60 days following the date of the filing of
such Registration Statement or (B) 15 business days following receipt of notice
by the SEC that the Registration Statement may be declared effective, then the
Company shall issue to the undersigned, in respect of each 30 day period
(pro-rated for any period less than 30 days) following such date and continuing
until such time as the Registration Statement shall have been declared
effective, such number of shares of Common Stock as shall be equal to one and
one-half percent (1.5%) of the number of Shares purchased hereunder (the
"Additional Shares"), provided, that, notwithstanding anything to the contrary
contained in the foregoing, the Company shall have no obligation to issue any
Additional Shares in excess of such number of Additional Shares as shall be
equal to, in the aggregate, 4.5% of the number of Shares purchased hereunder.
3. Representations and Warranties of the Undersigned. In order to induce the
Company to accept this subscription, the undersigned hereby represents and
warrants to, and covenants with, the Company as follows:
(i) The undersigned has had a reasonable opportunity to ask questions of
and receive answers from the Company concerning the Company and the offering,
and all such questions, if any, have been answered to the full satisfaction of
the undersigned;
(ii) The undersigned has such knowledge and expertise in financial and
business matters that the undersigned is capable of evaluating the merits and
risks involved in an investment in the Securities
(iii) The information provided by the undersigned in this Subscription
Agreement being delivered by the undersigned to the Company herewith is true,
complete and correct in all material respects, and the undersigned understands
that the Company has determined that the exemption from the registration
provisions of the Act, which is based upon non-public offerings is applicable to
the offer and sale of the Securities, based, in part, upon the representations,
warranties and agreements made by the undersigned herein ;
(iv) Except as set forth herein, no representations or warranties have
been made to the undersigned by the Company or by any agent, employee, or
affiliate of the Company, and in entering into this transaction the undersigned
is not relying upon any information, other than the results of independent
investigation by the undersigned and the representations contained herein and
the Company's filings with the SEC under the Exchange Act of 0000, (xxx
"Xxxxxxxx Xxx");
(vi) The undersigned understands that: (A) the Securities have not been
registered under the Act or the securities laws of any state, and are being
offered by the Company based upon an exemption from such registration
requirements for non-public offerings pursuant to Regulation D under the Act;
(B) the Securities will be "restricted securities", as said term is defined in
Rule 144 of the Rules and Regulations promulgated under the Act; (C) the
Securities may not be sold or otherwise transferred unless they have been first
registered under the Act and all applicable state securities laws, or unless an
exemption from such registration provisions is available with respect to said
resale or transfer; (D) other than as set forth in the Offering Materials or
herein, the Company is under no obligation to register the Securities under the
Act or any state securities laws, or to take any action to make any exemption
from any such registration provisions available; (E) the certificates for the
Securities will bear a legend to the effect that the transfer of the securities
represented thereby is subject to the provisions hereof; and (F)
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stop transfer instructions will be placed with the Company's transfer agent, if
any, for the Securities.
(vii) The undersigned is acquiring the Securities solely for the account
of the undersigned, for investment purposes only, and not with a view towards
their public distribution;
(viii) The undersigned will not sell or otherwise transfer any of the
Securities unless and until: (A) said securities, shall have first been
registered under the Act and all applicable state securities laws; or (B) the
undersigned shall have first delivered to the Company a written opinion of
counsel (which counsel and opinion (in form and substance) shall be reasonably
satisfactory to the Company), to the effect that the proposed sale or transfer
is exempt from the registration provisions of the Act and all applicable state
securities laws, except where such sale or transfer may be effected under Rule
144 of the Rules and Regulations promulgated under the Act and no opinion is
necessary to enable such sale or transfer;
(ix) The undersigned has full power and authority to execute and deliver
this Subscription Agreement and to perform its obligations hereunder, and this
Subscription Agreement is a legally binding obligation of the undersigned in
accordance with its terms;
(x) The undersigned meets the requirements of at least one of the
suitability standards for an "accredited investor," as such term is defined in
Regulation D of the Rules and Regulations promulgated under the Act and as set
forth in this Subscription Agreement;
4. Representations and Warranties of the Company. In order to induce the
undersigned to make this subscription, the Company hereby represents and
warrants to, and covenants with, the undersigned as follows:
(i) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted. The Company and each of its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its business or properties.
(ii) All corporate action on the part of the Company necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the closing of the subscription hereunder, and this Agreement, upon due
execution and delivery, constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(iii) The Securities, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable, and the undersigned shall have
good and marketable title to such Securities, free and clear of any liens,
pledges, encumbrances, taxes, charges or restrictions of any kind (other than
those created by or through the undersigned).
(v) The Company is not in violation of, or default under, any provisions
of its Certificate of Incorporation or Bylaws, both as currently in effect. To
its knowledge, the Company is in compliance in all material respects with all
applicable laws, rules, regulations, judgments, decrees and governmental
5
orders, except for such non-compliance that would not have a material adverse
effect on the properties, financial condition, operations, prospects or business
of the Company. The Company is not in breach or violation of or default under,
whether with or without notice or following the passage of time, in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or its
property is bound, except for such non-compliance that would not have a material
adverse effect on the properties, financial condition, operations, prospects or
business of the Company, and the transactions contemplated by this Agreement
will not result in any such breach, violation or default.
(vi) There is no action, suit, proceeding or investigation pending or
currently threatened against the Company which questions the validity of this
Agreement or the consummation of the transactions contemplated hereby
(including, without limitation, under the Warrant) or which might result, either
individually or in the aggregate, in any material adverse effects on the assets,
financial condition, operations or business of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
(vii) The Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the U.S. Securities and Exchange
Commission (the "Commission") pursuant to the reporting requirements of the
Exchange Act (the foregoing materials and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being collectively referred to herein as the "SEC Documents").
As of their respective dates, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company's financial statement included in the SEC Document
fairly present, as of the dates set forth therein, the Company's financial
position. Except as otherwise provided in the SEC Documents or herein, since the
filing of the Company's most recent form Annual Report on Form 10-KSB, there has
been no material adverse change and no material adverse development in the
business, properties, operations or prospects, financial condition, liabilities
or results of operations of the Company or its subsidiaries.
(viii) Except as otherwise provided herein, no representation, warranty or
statement by the Company in this Subscription Agreement contained, as of their
respective dates, or now contains, any untrue statement of a material fact or,
as of such dates, omitted to, or when taken together now omits to state, a
material fact necessary to make the statements made herein or therein, in light
of the circumstances under which they were made, not misleading.
6. Press Release. Neither the Company nor the undersigned shall issue a press
release or other public announcement relating to this agreement or the subject
matter hereof without the prior approval of the other.
RISK FACTORS
Your investment involves a high degree of risk. The undersigned (sometimes
referred to as "you") should be able to bear a complete loss of its investment.
The undersigned should carefully consider the risks described below and the
other information in this prospectus before deciding to invest in shares of the
Company (the Company is sometimes referred to as "we"). If any of the following
risks actually occur, our business, financial condition and results of
operations would likely suffer. In such
6
case, the market price of our capital stock could decline, and you may lose all
or a part of the money you pay to buy our stock.
The comprehensive communications infrastructure underlying our proposed
powerline solution is in the design and development stage and we cannot assure
you that it will be successfully developed or technologically viable and, even
if developed or viable, successfully marketed.
We are engaged in the architecture, design, development, implementation and
marketing of a proposed comprehensive communication infrastructure which uses
the electrical power distribution grid as a high-speed telecommunication medium.
Our current activities are focused on the implementation and marketing of our
proposed powerline telecommunications technology solution and system
architectures for use on low and medium voltage systems. Our proposed solution
is designed to enable, initially, high speed internet access and telephony
services. The proposed powerline telecommunication solution is based on our
establishing and maintaining partnership relationships with utilities and
electrical power distribution companies and telecommunication service and
technology companies. Existing electrical power grids have, to date, not been
widely used commercially for high-speed data transmission due to certain
technological and infrastructure limitations. Our proposed solution is, we
believe, designed to overcome these limitations. In order for our proposed
communications infrastructure to be technologically feasible and viable, we
believe that we will need to develop and integrate several components and
technologies. We are in the process of integrating our solution concept with
various other complementary and necessary technologies. We anticipate and
propose to have these complementary components and technologies produced by
prospective third party partners in the telecommunications and related
industries. While first phase alpha testing and field trials have validated most
of the concepts underlying our powerline telecommunication technology solution,
we can provide no assurance that these complementary components or technologies
will be successfully developed or technologically feasible or integrated into
our proposed communications infrastructure or, even if they can be successfully
developed and integrated and technologically feasible, that they can be so
developed and integrated on commercially acceptable terms and conditions. Once
we complete the successful design and development of our proposed solution, if
ever, our current business model contemplates that, in order to adequately
deliver our proposed solution to end-users, we will need to enter into
collaborative arrangements with third party utilities or other providers of
electric power. No assurance can be provided that we will be successful in
establishing and maintaining these collaborative arrangement on commercially
acceptable terms or that we will be successful in marketing.
Success of our proposed comprehensive communications infrastructure is
contingent upon its adoption by utilities and other distributors of electric
power.
Our proposed powerline telecommunication solution is based on our
establishing and maintaining partnership relationships with utilities and
electrical power distribution companies as well as telecommunication service and
technology companies. Our current business and revenue model contemplate, at
least initially, that the proposed communication solution will be made available
to residential customers and other end-users through the existing infrastructure
of utilities or other distributors of electric power. Accordingly, we believe
that our success is contingent upon the technological feasibility and commercial
and fiscal viability of our proposed communications solution and its acceptance
and adoption by utilities and other distributors of electric power. While we
believe that our proposed powerline telecommunications solution, once
successfully developed and integrated and fully implemented, will prove to be an
attractive proposition to utilities and other electric power distributors, we
cannot provide any assurance that the utilities or the other distributors of
electric power will in fact so adopt or ratify our proposed powerline
telecommunications solution. Additionally, we believe that the success of
wire-less based solution providers overcoming technical challenges and
7
furnishing a reliable, technologically feasible and commercially viable solution
for high speed data transfer may adversely influence the utilities' decision to
adopt our proposed solution.
Governmental regulations may delay or preclude the adoption of our proposed
solution.
Utilities and other providers of electric power are ordinarily subject
to significant governmental oversight and regulations, on both the state and
federal level. Foreign utilities and other providers of electric power are also
subject to significant governmental oversight and regulations in their
respective home countries. In certain countries, such as Japan, there may be
regulations restricting the transmission of high frequency over power-lines,
necessitating governmental permission. These regulations may be interpreted in
such a manner as to inhibit, delay or preclude the provision of our proposed
communications solutions or to require costly modifications to the proposed
solution. In addition, regulations in the telecommunications field may also
adversely affect the provision of our proposed solution. We are attempting to
address these regulatory challenges in part by the establishment of our advisory
board, which is staffed with non-employee individuals who have extensive
experience in a broad array of professional areas, including in regulatory areas
that we believe may be relevant to the industries we are or may become engaged
in.
We will require additional financing.
We anticipate that our cash on hand will allow us to maintain operations as
presently conducted at least through the next twelve months. However, we will
require additional financing to fully execute our design, development and
commercialization plans, including the completion of the design, development and
testing of the products under joint development with Cisco Systems, Inc., as
well as to maintain necessary levels of liquidity. Additionally, if we expand
our current operations to include strategic partnerships or mergers or
acquisitions, then we will also require additional financing to realize such
mergers or acquisitions. We have no commitments for any such financing and there
can be no assurance that we will obtain additional capital when needed or any
assurance that any additional financing can be obtained on favorable terms, if
at all. Any additional financing is likely to result in dilution to our
stockholders.
We will need to negotiate commercial agreements with our prospective partners
relating to the commercialization of our communications infrastructure and the
sharing of revenues and cost savings generated by the adoption of our solution.
Our business revenue model contemplates that our proposed communications
solution, once the infrastructure is fully commercialized, will be primarily
generated by the consumer basket of services that will be made available to the
end-user or the enhanced utility services that we believe will result in
significant cost savings to the utilities or the other providers of electric
power. Additionally, we also anticipate that we will be able to generate fees
during the development phase of the communication infrastructure, prior to the
commercialization of our solution, if we are able to successfully conclude
agreements with utilities or other providers of electrical power whereby such
parties agree to participate in the outlays associated with developing our
solution. Our business model also contemplates that we will assume a significant
portion of start-up costs associated with the commercialization of our proposed
solution as well as training and maintenance costs. Additionally, our agreement
with Cisco Systems, Inc. contemplates that beyond an initial period of
exclusivity with respect to the development and marketing of products under
joint development, we and Cisco will negotiate the terms of the license and
manufacturing rights, as well as other matters, relating to the products under
development. Accordingly, we will need to negotiate with our prospective utility
and other providers of electric power
8
partners, as well as prospective partners in the telecommunications and
technology service areas, the terms of the marketing, license and other
agreements relating to the implementation of the proposed solution, including,
without limitation, terms relating to the sharing of any up-front capital
expenditures required to commercialize the proposed communications structure,
and the sharing of revenues and cost savings generated by the proposed solution.
No assurance can be provided that we will be able to successfully negotiate
these arrangements on commercially acceptable terms.
We have incurred losses in every quarter and year, and we expect these losses to
continue in the foreseeable future.
Since we began our operations in 1996, we have lost money in every quarter and
year. Prior to March 2000, when we actively began to engage in our current
business, the design, development and commercialization of powerline
telecommunication technology, we designed, developed and marketed smart-card
application, a business in which we are no longer engaged. As of December 31,
2000, we had an accumulated deficit of approximately $48.7 million, which
includes $40 million in non-cash charges primarily related to the issuance of
warrants and the extinguishment of debt. We may not be able to generate
sufficient revenue to become profitable. Even if we do become profitable, we may
not be able to sustain or increase profitability on a quarterly or annual basis
in the future.
We have only been in business in the powerline telecommunication field for a
short period of time, so your basis for evaluating us is limited.
We are a development stage company with a limited history of operations
which is primarily in the design and development of smart card based
technologies and products, a business in which we no longer engage. We have been
engaged in the design, development and commercialization of our proposed
powerline communication infrastructure since March 2000. As a result, there is a
limited history of operations for evaluating our power-line telecommunication
technology business. You must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets,
including the market for the provision of rapid power-line telecommunication
services. Some of these risks and uncertainties include:
*The technological feasibility of our proposed communications solution;
*The successful implementation of the communications infrastructure which
is required to properly deliver to the end-user our proposed communications
solution;
* Our ability to establish and maintain relationships with appropriate
parties in the electric power distributions and telecommunications industries;
* The adoption by the electric power distribution of our proposed
communications solution;
* Competition of wire-less based solutions;
* Our ability to respond effectively to actions taken by our competitors;
* Our ability to respond effectively to pertinent governmental regulatory
concerns and demands;
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* Our ability to build our organizational and technical infrastructures to
manage our growth effectively;
* Our ability to design, develop and implement effective product
offerings; and
* Our ability to attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
Our ability to manage growth is limited.
If we expand our management, design and development, testing, quality
control, marketing, sales and service and support operations, as well as
financial and accounting controls, such expansion could place a significant
strain on our company. If our management is unable to manage growth effectively,
our business and financial conditions could be materially adversely affected.
Failure to integrate new personnel on a timely basis could have an adverse
effect on our operations. Furthermore, the expenses associated with expanding
our management team and hiring new employees will likely be incurred prior to
the generation of any associated revenues. Our inability to manage growth
effectively could have a material adverse effect on our business, financial
conditions or results of operation.
The market for our proposed technologies is unproven.
The market for rapid power-line data telecommunication is unproven. The
use of electrical power-lines for high speed telecommunication is in an
embryonic stage. For us to be successful, utilities other providers of
electrical power and telecommunication and technology service companies, as well
as end-users, must accept the concept of power-line data telecommunication
generally and also adopt the solution that we have developed. There can be no
assurance that utilization of electrical power grids as a medium of rapid data
transmission will be commercially accepted. Moreover, the high frequency
electrical characteristics of the power grid in some countries or localities may
prevent the efficient transmission of high frequency signals, and thus not
permit the implementation of our solution. Further our solution may not achieve
or sustain market acceptance under emerging industry standards or may not meet,
or continue to meet, the changing demands of the media access and technology
service companies. If the market for power-line based rapid transmission of data
does not develop or expand, our business, financial condition and results of
operations would be materially adversely affected.
You should not rely on our quarterly or year-end operating results as an
indication of how we will do in the future.
Our quarterly and year-end operating results may vary significantly in the
foreseeable future due to a number of factors that could affect our performance,
expenses or prospects during any particular quarter. Due to all of the risks
discussed in this section, you should not rely on quarter-to-quarter comparisons
of our results of operations as an indication of future performance. It is
possible that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the price
of our common stock would likely fall.
We are engaged in a highly competitive field.
10
The high-speed data transmission industry and internet access, the fields
of business in which we are currently engaged, are extremely competitive. We
believe that there are companies, with substantially greater financial,
technological, marketing, personnel and research and development resources than
our company, which are engaged in developing a high speed data transmission
solution. Additionally, efforts in the past to utilize electrical power lines as
a high-speed data communications medium have not been successful due to
technological impediments or economic and fiscal considerations. Certain
companies, including those with significantly greater resources than our
company, such as Siemens and Xxxxxxx, have undertaken efforts to implement a
comprehensive powerline telecommunication based solutions. However, to date,
none have, to our knowledge, implemented and commercialized any such solution.
Certain other companies, including those with significantly greater resources
than our company, provide, we believe, partial powerline based solutions. We
believe that our core strategy, which attempts principally to partner our
proposed powerline based solution with appropriate parties in the
telecommunication and service technology areas as well as utilities and other
providers of electric power, provides the most viable prospect of a powerline
telecommunication based high-speed solution. There can be no assurance that we
will be able to compete successfully in this market.
Certain companies claim to provide non-powerline based high-speed data
transmission. In particular, internet service providers (ISPs) provide internet
access over existing networks and have nationwide marketing presence and
strategic or commercial licenses with telecom carriers and wireless and
satellite service providers have announced plans to expand fixed-wireless
networks for high speed data customers. Cellular operators are establishing
portals facilitating access to web and information services. There can be no
assurance that other companies will not enter the market in the future. There
can be no assurance that development by others of similar or more effective
technologies or solutions will not render our Proposed solution non-competitive
or obsolete.
New products and rapid technological change may render us vulnerable to
technological obsolescence.
The high speed data communications industry is characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. Our success will depend in part on our ability to meet changing
customer requirements and evolving industry standards. We currently devote, and
intend to continue to devote, our resources toward the development of high-speed
power-line based data transmission and internet access. There can be no
assurance that we will successfully complete the development of these
technologies and related products in a timely fashion or that our prospective
technologies or future products, if any, will satisfy the needs of the market.
There can also be no assurance that products and technologies developed by
others will not adversely affect our competitive position or render our
prospective technologies non-competitive or obsolete.
We have limited marketing experience and capabilities.
We have limited marketing experience and limited financial, personnel and
other resources to undertake marketing and advertising activities. To date we
have generated no revenues. As is typically the case with newly-introduced
products or technologies in the design and development stage, the ultimate level
of demand is subject to a high degree of uncertainty. Developing market
acceptance for our proposed high-speed telecommunication medium will require
substantial marketing efforts and the expenditure of a significant amount of
funds to inform utilities, electrical power distributors as well as
telecommunication service technology companies of the perceived advantages of
our proposed solution. There can be no assurance that our marketing efforts will
result in demand for, or market acceptance of, our proposed technologies or
solution. There can be no assurance that we will be able to market these
proposed technologies successfully or that our efforts will result in any
significant revenues. Our
11
business model contemplates that we will need to establish and maintain
commercial relationships with utilities and other providers of electrical power
as well as telecommunications service technologies in order to commercialize our
proposed solution. There can be no assurance that we will be able to identify
suitable partners or that, if suitable partners are identified, we will be able
to sign appropriate agreements on acceptable terms.
We have very few employees and are particularly dependent on certain of our key
personnel.
We currently employ 15 full-time employees. Although we believe we
maintain a core group sufficient for us to effectively conduct our operations,
the loss of certain of our key personnel could, to varying degrees, have an
adverse effect on our operations and product development. There can be no
assurance that we will be successful in identifying and retaining such personnel
on commercially acceptable terms.
Our future success is also dependent upon our continuing ability to
attract and retain highly qualified technical personnel to perform research,
design and development activities as well commercialization activities. There is
a high demand in our market for qualified technical personnel and competition
for such personnel is generally intense.
Anti-dilution protection accorded to certain of our Executive Officers.
In connection with their employment agreements, we granted to each of our Chief
Executive Officer, Xxxx Xxxxxxxx and, our Chief Financial Officer, Xxxxxxx
Xxxxxxxxxx, stock options for, respectively, 1,350,000 and 240,000 shares of
common stock. In connection with these stock options, each of Messrs. Xxxxxxxx
and Xxxxxxxxxx have been granted anti-dilution protection with respect to any
future stock issuances by us in an amount necessary to maintain their respective
percentage ownership of the outstanding shares of our stock on a fully diluted
basis on the date of grant had their respective options been exercised on the
date of grant. Xxxx Xxxxxxxx'x and Xxxxxxx Xxxxxxxxxx'x percentage ownership of
the outstanding shares of our stock (on a fully diluted basis) on the date of
the grant of these options are, respectively, approximately 4.2% and .075%.
While we have successfully raised funds in the past notwithstanding these
provisions, such anti-dilution protection could make future financing more
difficult for us to obtain, if at all, unless these provisions are waived by
these executive officers.
Our efforts to protect our intellectual property rights may not be adequate.
Our success depends in part on our proprietary technologies. We filed with
the United States Patent and Trademark Office patent applications for the
inductive coupling of a data signal to a power transmission cable. We anticipate
filing shortly a patent application for the coupling of broadband modems to
powerlines. No patents have yet been issued. Additionally, we have certain
patents and patent applications pending in the smart-card applications area, a
business in which we are no longer engaged. Currently we are in the process of
establishing two trademarks, "PLT Systems" and "PLT Solutions", though no
assurance can be provided we will establish such recognized trademark.
Accordingly, we rely on a combination of trademark, copyright and trade secret
laws, nondisclosure and other contractual provisions, and technical measures to
protect our intellectual property rights. Our patent, trademarks or copyrights
in the powerline telecommunication technology and may be challenged and
invalidated or circumvented. Others may develop technologies that are similar or
superior to our technologies or duplicate our technologies. Effective
intellectual property protection may be unavailable or limited in certain
foreign countries. Despite efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise use aspects of processes
and devices that we regard as
12
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.
Litigation may be necessary in the future to enforce any patents that may
be issued and other intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others.
There can be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
this litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, and expend significant resources to
develop non-infringing technology or obtain licenses to infringed technology.
Our failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.
Future Sales of our common stock by our stockholders could have an adverse
effect on the market price of our common stock
We have 23,125,794 shares of our common stock presently issued and
outstanding of which 11,179,342 are being registered. In addition, there are
currently outstanding options or warrants to purchase approximately 15,500,000
shares of our common stock, of which 13,716,711 held by selling stockholders
with exercise prices ranging from a nominal price to 8.00 per share.
Additionally, there are approximately 3,181,000 shares currently transferable
under Rule 144 promulgated under the Securities Act of 1933, as amended, subject
to the volume limitations and other conditions of such Rule. The market price of
our common stock could decline as a result of sales by our existing stockholders
of a large number of shares of common stock in the market after this offering,
or the perception that such sales may occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and a price
that we deem appropriate.
Our stock price is volatile and could continue to be volatile.
Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many hi-tech
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline.
General economic, market and political conditions could also materially and
adversely affect the market price of our common stock and investors may be
unable to resell their shares of common stock at or above the offering price.
It may be difficult for a third party to acquire us.
Provisions of Delaware law could make it more difficult for a third party
to acquire us, even if it would be beneficial to our stockholders.
Xxxxx Stock Regulation is applicable to investment in our shares.
13
Broker-dealer practices in connection with transactions in "xxxxx stocks"
are regulated by certain xxxxx stock rules adopted by the Securities and
Exchange Commission. Xxxxx stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The xxxxx stock rules require a
broker-dealer, prior to a transaction in a xxxxx stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about xxxxx stocks and the risks in the xxxxx stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the xxxxx stock, the compensation of the broker-dealer and its
sales person in the transaction, and monthly account statements showing the
market value of each xxxxx stock held in the customer's account. In addition,
the xxxxx stock rules generally require that prior to a transaction in a xxxxx
stock the broker-dealer make a special written determination that the xxxxx
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the xxxxx stock rules.
The undersigned has carefully reviewed the jurisdictional notice listed
below and agrees to abide by any restrictions contained therein applicable to
the undersigned; and
JURISDICTIONAL NOTICE
Residents of All States:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN
STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OR THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * *
The undersigned understands that this subscription is not binding upon the
Company until the Company accepts it, which acceptance is at the sole discretion
of the Company and is to be evidenced by the Company's execution of this
Subscription Agreement where indicated. This Subscription Agreement shall be
null and void if the Company does not accept it as aforesaid.
If the Company rejects all or any part of this subscription, it shall
immediately remit to the undersigned that part of the purchase price
representing the number of Shares subscribed for by the undersigned but rejected
by the Company.
14
Neither this Subscription Agreement nor any of the rights of the
undersigned hereunder may be transferred or assigned by the undersigned.
This Subscription Agreement: (i) may only be modified by a written
instrument executed by the undersigned and the Company; (ii) sets forth the
entire agreement of the undersigned and the Company with respect to the subject
matter hereof; (iii) shall be governed by the laws of the State of Delaware
applicable to contracts made and to be wholly performed therein; and (iv) shall
inure to the benefit of, and be binding upon the Company and the undersigned and
its respective heirs, legal representatives, successors, and assignees.
Unless the context otherwise requires, all personal pronouns used in this
Subscription Agreement, whether in the masculine, feminine or neuter gender,
shall include all other genders.
All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or, if deposited
with a United States national post office, five (5) days after being mailed by
certified or registered mail, return receipt requested, postage prepaid, as
follows: if to the undersigned, to the address set forth on the signature page
hereof; and if to the Company, to the address provided above or to such other
address as the Company or the undersigned shall have designated to the other by
like notice.
15
ACCREDITED INVESTOR CERTIFICATION
PURCHASE OF THE SHARES INVOLVES SIGNIFICANT RISKS AND IS A SUITABLE
INVESTMENT ONLY FOR CERTAIN TYPES OF POTENTIAL INVESTORS. SEE "RISK FACTORS."
The purchase of Shares is suitable only for investors who have no need for
liquidity in their investments and who have adequate means of providing for
their current needs and contingencies even if the investment in the Shares
results in a total loss. Shares will be sold only to prospective investors which
are "accredited investors" under Regulation D promulgated under the Securities
Act. "Accredited Investors" are those investors which make certain written
representations that evidence the investor comes within one of the following
categories:
(Initial the appropriate category)
|_| i) Any bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the
Investment Company Act of 1940, as amended, or a business
development company as defined in Section 2(a)(48) of that act; any
Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958, as amended; any plan established
and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, as amended, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such act, which plan fiduciary is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
|_| ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended;
|X| iii) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership not formed for the specific purpose of acquiring the
Shares offered, with total assets in excess of $5,000,000;
|_| iv) Any natural person whose individual net worth or joint net worth
with that person's spouse, at the time of investment in the Shares,
exceeds $1,000,000;
16
|_| v) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent calendar years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching that same
income level in the ____ current year;
|_| vi) Any partnership or trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Shares, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable of
evaluating the risks and merits of an investment in the units; or
|_| vii) Any entity in which all of the equity owners are accredited
investors.
As used in this Subscription Agreement the term "net worth" means the
excess of total assets over total liabilities. In determining income, an
investor should add to his or her adjusted gross income any amounts attributable
to tax exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to an XXX
or Xxxxx retirement plan, alimony payments and without any amount by which
income from long-term capital gains has been reduced in arriving at adjusted
gross income.
The Company may make or cause to be made such further inquiry and obtain
such additional information as it deems appropriate with regard to the
suitability of prospective investors. The Company may reject subscriptions in
whole or in part if, in its discretion, it deems such action to be in the best
interests of the Company.
If any information furnished or representations made by a prospective
investor or others acting on its behalf mislead the Company or the Company as to
the suitability or other circumstances of such investor, of if, because of any
error or misunderstanding as to such circumstances, a copy of this Subscription
Agreement is delivered to any such prospective investor, the delivery of this
Subscription Agreement to such prospective investor shall not be deemed to be an
offer and this Subscription Agreement must be returned to the Company
immediately.
17
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement
this 15th day of June, 2001.
750,000 X $1.00 = $750,000
------------- --------
No. of Shares (Share Price) Subscription Price
If the Investor is a PARTNERSHIP,
CORPORATION or TRUST:
/s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------------------------
Signature
Oscar Private Equity Investments, L.P
---------------------------------------------------
Print Name of Subscriber Organization
Xxxxxxx X. Xxxxxxxxx, President of General Partner
---------------------------------------------------
Print Name and Title of Person Signing
--------------------------------------------------------------------------------
(All Subscribers should please print information
below exactly as you wish it to appear
in the records of the Company)
Oscar Private Equity Investments, L.P.
--------------------------------------- ------------------------------------
Name and capacity in which subscription Taxpayer I.D. Number
is made -- see below for particular
requirements
Address: Address for notices, if different:
--------------------------------------- ------------------------------------
Number and Street Number and Street
--------------------------------------- ------------------------------------
City State Zip Code City State Zip Code
18
ACCEPTANCE OF SUBSCRIPTION
The foregoing subscription is hereby accepted by Ambient Corporation this 15th
day of June 2001, for 750,000 Shares.
Ambient Corporation
By: /s/ Xxxx X. Xxxxxxxx
----------------------------------
Name: Xxxx X. Xxxxxxxx
--------------------------------
Title: Chief Executive Officer
-------------------------------
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