SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
October 27, 2004, by and among ON2 Technologies, Inc., a Nevada corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Actual Minimum" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Warrant Shares
or Underlying Shares issuable upon conversion in full of all shares of
Preferred Stock, ignoring any conversion or exercise limits set forth
therein, and assuming that any previously unconverted shares of Preferred
Stock are held until the 42nd month after the Closing Date and all
dividends are paid in shares of Common Stock until such date,
notwithstanding any limitations on conversion in the Certificate of
Designation.
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Certificate of Designation" means the Certificate of Designation to
be filed prior to the Closing by the Company with the Secretary of State
of Delaware, in the form of Exhibit A attached hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.01 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Counsel" means McGuireWoods LLP, with offices located at
1345 Avenue of the Americas, Xxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
"Conversion Price" shall have the meaning ascribed to such term in
the Certificate of Designation.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1 hereof.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit G hereto executed and delivered contemporaneously with
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company pursuant to
any stock or option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any
securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities, and (c) securities issued pursuant
to acquisitions or strategic transactions, provided any such issuance
shall only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.
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"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the up to 4,000 shares of the Company's
Series D Convertible Preferred Stock issued hereunder having the rights,
preferences and privileges set forth in the Certificate of Designation.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares and Warrant Shares by each Purchaser
as provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
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"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Preferred Stock, the Warrants, the Warrant
Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Trading Market (or any successor
entity) from the shareholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including the
issuance of all of the Underlying Shares and the Warrant Shares in excess
of 19.99% of the issued and outstanding Common Stock on the Closing Date.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the amount
to be paid for the Preferred Stock purchased hereunder as specified below
such Purchaser's name on the signature page of this Agreement and next to
the heading "Subscription Amount", in United States Dollars and in
immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the OTC Bulletin Board, the Nasdaq SmallCap Market, the American Stock
Exchange, the New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Certificate of
Designation, the Warrants, the Escrow Agreement, the Registration Rights
Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
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"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock and issued and issuable in lieu of the
cash payment of dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
"Warrants" means collectively the Common Stock purchase warrants, in
the forms of Exhibit C and Exhibit D, delivered to the Purchasers at the
Closing in accordance with Section 2.2(a) hereof.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $4,000,000
of shares of Preferred Stock with an aggregated Stated Value equal to such
Purchaser's Subscription Amount and Warrants as determined by pursuant to
Section 2.2(a)(iii). The aggregate number of shares of Preferred Stock sold
hereunder shall be up to 4,000. Each Purchaser shall deliver to the Company via
wire transfer or a certified check of immediately available funds equal to their
Subscription Amount and the Company shall deliver to each Purchaser their
respective shares of Preferred Stock and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of the Escrow Agent, or such other location
as the parties shall mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver or cause to be
delivered to the Escrow Agent with respect to each Purchaser
the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of Preferred
Stock equal to such Purchaser's Subscription Amount
divided by the Stated Value, registered in the name of
such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal
to 50% of such Purchaser's Subscription Amount divided
by $0.668, with an exercise price equal to $0.65,
subject to adjustment therein, and which Warrant shall
be exercisable immediately and have a term of exercise
equal to one year (the "Series A Warrant"), in the form
of Exhibit C attached hereto;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal
to 50% of such Purchaser's Subscription Amount divided
by $0.668, with an exercise price equal to $0.76,
subject to adjustment therein, which Warrant shall be
exercisable immediately and have a term of exercise
equal to five years (the "Series B Warrant"), in the
form of Exhibit D attached hereto;
(v) the Registration Rights Agreement duly executed by the
Company;
(vi) a legal opinion of Company Counsel, in the form of
Exhibit E attached hereto;
(vii) the written voting agreement, in the form of Exhibit F
attached hereto, of all of the officers and directors
holding more than 10% of the issued and outstanding
shares of Common Stock on the date hereof to vote all
Common Stock owned by each of such officers and
directors as of the record date for the annual meeting
of shareholders of the Company in favor of Shareholder
Approval; and
(viii) the Escrow Agreement duly executed by the Company.
b) On the Closing Date, each Purchaser shall deliver or cause to
be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
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(iii) the Escrow Agreement duly executed by such Purchaser;
and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed at or prior to the Closing Date shall
have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchasers hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall
have been performed;
(iii) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect
to the Company since the date hereof; and
(v) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries,
then references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business, prospects
or financial condition of the Company and the Subsidiaries, taken as a
whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and to its knowledge no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company 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.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the other transactions contemplated thereby do not and will not: (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6, (ii) the filing with the Commission of the Registration Statement,
(iii) the notice and/or application(s) to each applicable Trading Market
for the issuance and sale of the Preferred Stock and Warrants and the
listing of the Underlying Shares and Warrant Shares for trading thereon in
the time and manner required thereby, (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable
state securities laws and (vi) Shareholder Approval (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock a number
of shares of Common Stock for issuance of the Warrant Shares and
Underlying Shares at least equal to the Actual Minimum on the date hereof.
The Company has not, and to the knowledge of the Company, no Affiliate of
the Company has sold, offered for sale or solicited offers to buy or
otherwise negotiated in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of
the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that
would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
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(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such filing
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents. The issuance and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the shares of Preferred Stock. There
are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company's capital stock to which the
Company is a party or, to the knowledge of the Company, between or among
any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, 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 financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial condition
of the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
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(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights.
11
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including but not
limited to, directors and officers insurance coverage at least equal to
the aggregate Subscription Amount. To the best of Company's knowledge,
such insurance contracts and policies are accurate and complete. Neither
the Company nor any Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The Company presented
in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in
Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
knowledge, in other factors that could significantly affect the Company's
internal controls.
12
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the shares of Preferred
Stock, will not be or be an Affiliate of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended. The Company
shall conduct its business in a manner so that it will not become subject
to the Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
13
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or
designated.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to
be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii)
the Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of
its debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. The SEC Reports set
forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness
of others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
14
(bb) Form S-3 Eligibility. The Company is eligible to register the
resale of the Underlying Shares and the Warrant Shares for resale by the
Purchaser on Form S-3 promulgated under the Securities Act.
(cc) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(dd) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
15
(ff) Accountants. The Company's accountants are set forth on
Schedule 3.1(ff) of the Disclosure Schedule. To the Company's knowledge,
such accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-KSB for the year ending December 31, 2004 are a
registered public accounting firm as required by the Securities Act.
(gg) Seniority. As of the Closing Date, no indebtedness or other
equity of the Company is senior to the Preferred Stock in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to
the property covered thereby).
(hh) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company which individually or in the aggregate
could reasonably be expected to result in a Material Adverse Effect or
result in a delay in the effectiveness of the Registration Statement, and
the Company is current with respect to any fees owed to its accountants
and lawyers.
(ii) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
The Purchaser acknowledges and agrees that the Company does not make and
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.1.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
16
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part
of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representation. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants, it will be either: (i) an "accredited
investor" as defined under the Securities Act and/or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
17
(f) Short Sale. Each Purchaser represents that after the date that
such Purchaser learned of the terms of this transaction and prior to the
date hereof, neither it nor any Person over which the Purchaser has direct
control, have made any net short sales of, or granted any option for the
purchase of or entered into any hedging or similar transaction with the
same economic effect as a net short sale, in the Common Stock.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the
following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
18
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Underlying
Shares and Warrant Shares pursuant to Rule 144, or (iii) if such
Underlying Shares and Warrant Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any shares
of Preferred Stock or any portion of a Warrant is converted or exercised
(as applicable) at a time when there is an effective registration
statement to cover the resale of the Underlying Shares and Warrant Shares,
or if such Underlying Shares and Warrant Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares and Warrant Shares shall be issued
free of all legends. The Company agrees that following the Effective Date
or at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery
by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Underlying Shares and Warrant Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to such Purchaser
a certificate representing such shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
19
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares and Warrant
Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Company's transfer agent) delivered for removal of
the restrictive legend and subject to this Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the Legend Removal Date
until such certificate is delivered without a legend. Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required by
the Transaction Documents, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
(f) From the date hereof until the one year anniversary of the
Effective Date, the Company shall not undertake a reverse or forward stock
split or reclassification of the Common Stock without the prior written
consent of the Purchasers holding a majority in interest of the shares of
Preferred Stock.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares and the Warrant Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
20
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the Notice of Conversion included in the
Certificate of Designations set forth the totality of the procedures required of
the Purchasers in order to exercise the Warrants or convert the Preferred Stock.
Other than as may be required by applicable law or by the rules promulgated by
the Commission, no additional legal opinion or other information or instructions
shall be required of the Purchasers to exercise their Warrants or convert their
Preferred Stock. The Company shall honor exercises of the Warrants and
conversions of the Preferred Stock and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
21
4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. Prior to
the receipt of Shareholder Approval, the Company shall not declare or pay any
cash dividend on its shares of Common Stock while any shares of Preferred Stock
remain outstanding.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
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4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 130% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common
Stock previously issued pursuant to the Transaction Documents, then the
Board of Directors of the Company shall use commercially reasonable
efforts to amend the Company's certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common Stock to
at least the Actual Minimum at such time (minus the number of shares of
Common Stock previously issued pursuant to the Transaction Documents), as
soon as possible and in any event not later than the 75th day after such
date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could possibly be issued
after such time pursuant to the Transaction Documents.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, prepare and file with such Trading Market
an additional shares listing application covering a number of shares of
Common Stock at least equal to the Actual Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common
Stock to be approved for listing on the Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing, and
(iv) maintain the listing of such Common Stock on any date at least equal
to the Actual Minimum on such date on such Trading Market or another
Trading Market. In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) at
the earliest practical date after the date the number of shares of Common
Stock issuable pursuant to this Agreement exceeds 15% of the issued and
outstanding shares of Common Stock on the Closing Date for the purpose of
obtaining Shareholder Approval, with the recommendation of the Company's
Board of Directors that such proposal be approved, and the Company shall
solicit proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of
such proposal.
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4.13 Participation in Future Financing. From the date hereof until the 12
month anniversary of the Effective Date, upon any financing by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to participate in
up to 100% of the Subsequent Financing (the "Participation Maximum"). At least
10 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing is proposed to be effected, and attached to
which shall be a term sheet or similar document relating thereto. Any Purchaser
electing to participate in the Subsequent Financing shall be prepared to close
on such financing within 5 Trading Days pursuant to the terms of the Subsequent
Financing Notice. If by 5:30 p.m. (New York City time) on the 10th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing (or
to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice. If the Company receives no notice
from a Purchaser as of such 10th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate. The Company
must provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. In the event the Company receives responses
to Subsequent Financing Notices from Purchasers seeking to purchase more than
the aggregate amount of the Subsequent Financing, each such Purchaser shall have
the right to purchase their Pro Rata Portion (as defined below) of the
Participation Maximum. "Pro Rata Portion" is the ratio of (x) the Subscription
Amount of Securities purchased by a participating Purchaser and (y) the sum of
the aggregate Subscription Amount of all participating Purchasers.
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
an Exempt Issuance.
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4.14 Subsequent Equity Sales. From the date hereof until 90 Trading Days
after the Effective Date, neither the Company nor any Subsidiary shall issue
shares of Common Stock or Common Stock Equivalents; provided, however, the 90
day period set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (y) trading in the Common Stock is
suspended by any Trading Market, or (z) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Underlying Shares and Warrant Shares. In addition to the limitations set forth
herein, from the date hereof until such time as no Purchaser holds any more than
25% of the Securities initially issued hereunder, the Company shall be
prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a "Variable Rate Transaction" or an "MFN Transaction" (each
as defined below). The term "Variable Rate Transaction" shall mean a transaction
in which the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock. The term "MFN
Transaction" shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related transactions
which grants to an investor the right to receive additional shares based upon
future transactions of the Company on terms more favorable than those granted to
such investor in such offering; provided, however, this prohibition shall not be
interpreted to preclude the Company from granting an investor standard full
ratchet or weighted average anti-dilution protections for a warrant or a
convertible instrument. In addition, unless Shareholder Approval has been
obtained and deemed effective, the Company shall not make any issuance
whatsoever of Common Stock or Common Stock Equivalents which would cause any
adjustment of the Conversion Price to the extent the holders of Preferred Stock
would not be permitted, pursuant to Section 7 of the Certificate of Designation,
to convert their respective outstanding Preferred Stock and exercise their
respective Warrants in full, ignoring for such purposes any conversion or
exercise limitations therein. Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages. Notwithstanding the
foregoing, this Section 4.14 shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
25
4.16 No Net Short Position. Each Purchaser agrees, severally and not
jointly with any other Purchasers, that they or any Person acting at the request
or direction of Purchaser, will not enter into any Short Sales (as hereinafter
defined) from the period commencing on the Closing Date and ending on the date
that such Purchaser no longer holds any Preferred Stock. For purposes of this
Section 4.14, a "Short Sale" by any Purchaser shall mean a sale of Common Stock
by such Purchaser that is marked as a short sale and that is made at a time when
there is no equivalent offsetting long position in Common Stock held by such
Purchaser. For purposes of determining whether there is an equivalent offsetting
long position in Common Stock held by the Purchaser, Underlying Shares that have
not yet been converted pursuant to the Certificate of Designation and Warrant
Shares that have not yet been exercised pursuant to the Warrants shall be deemed
to be held long by the Purchaser, and the amount of shares of Common Stock held
in a long position shall be all unconverted Underlying Shares (ignoring any
conversion limitations therein) and unexercised Warrant Shares (ignoring any
exercise limitations included therein) held by such Purchaser on such date, plus
any shares of Common Stock otherwise then held by such Purchaser. Additionally,
each Purchaser understands and acknowledges, severally and not jointly with any
other Purchaser, that the SEC currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Shares purchased hereunder
is a violation of Section 5 of the Securities Act, as set forth in Item 65,
Section 5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Accordingly, each Purchaser hereby agrees not
to use any of the Underlying Shares or Warrant Shares to cover any short sales
made prior to the Effective Date.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before November 15, 2004; provided that no such termination will affect the
right of any party to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
26
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers."
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
27
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Preferred Stock or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
28
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
29
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Midsummer Capital, LLC. The Company has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[SIGNATURE PAGE FOLLOWS]
30
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ON2 TECHNOLOGIES, INC. Address for Notice:
By:______________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
McGuireWoods LLP
1345 Avenue of the Americas
Xxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
31
[PURCHASER SIGNATURE PAGES TO ON2 SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
32
