EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance
set forth below, is entered into by and among ADVANCED TECHNOLOGY INDUSTRIES,
INC., a Delaware corporation, with headquarters located at 000 Xxxxxxx Xxxxxx,
#00X, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), and each individual or entity
(other than the Company) named on a signature page hereto (as used herein, each
such signatory is referred to as the "Lender" or a "Lender").
W I T N E S S E T H:
WHEREAS, the Company and the Lenders are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration for offers and sales under Regulation D as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the
1933 Act; and
WHEREAS, the Lenders wish to lend funds to the Company, subject to and
upon the terms and conditions of this Agreement (and acceptance of this
Agreement by the Company, the repayment of which will be represented by 9%
Convertible Debentures of the Company (the "Convertible Debentures"), which
Convertible Debentures will be convertible into shares of Common Stock of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
such Convertible Debentures) together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE.
(i) Subject to the terms and conditions of this Agreement and the other
Transaction Agreements, the undersigned hereby agrees to loan to the Company the
principal amount set forth on the Lender's signature page of this Agreement (the
"Purchase Price"), out of the aggregate amount being loaned by all Lenders of
Eight Hundred Seventy-Five Thousand Dollars ($875,000). The obligation to repay
the loan from a Lender shall be evidenced by the Company's issuance of one or
more Convertible Debentures to such Lender in such principal amount (the
"Debentures"). Each Debenture (i) shall provide for a conversion price (the
"Conversion Price"), which price may be adjusted from time to as provided in the
Debenture or in the other Transaction Agreements, (ii) shall have the terms and
conditions of, and be substantially in the form attached hereto as ANNEX I and
(iii) shall have such number of Warrants attached as provided in Section 4(f)
below. The loan to be made by a Lender and the issuance of the Debentures and
Warrants to such Lender are sometimes referred to herein and in the other
Transaction Agreements as the purchase and sale of the Debentures and Warrants.
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(ii) The Purchase Price to be paid by a Lender shall be equal to the
face amount of the Debentures being purchased on the relevant Closing Date (as
defined below) and shall be payable in United States Dollars.
b. CERTAIN DEFINITIONS. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
(ii) "Certificate of Incorporation Amendment" means an amendment to the
Company's Certificate of Incorporation to increase the authorized capital stock
of the Company in an amount sufficient such that all of the Debentures can be
converted into shares of Common Stock and all shares of Common Stock subject to
the Warrants can be issued upon exercise of the Warrants.
(iii) "Certificate of Incorporation Amendment Filing Date" means the
date the Company files with the Secretary of State of the State of Delaware the
Certificate of Incorporation Amendment.
(iv) "Certificates" means the Debentures and the Warrants, each duly
executed by the Company and issued on the Closing Date (as defined below) in the
name of a Lender.
(v) "Closing Date" means as defined in Section 6 herein.
(vi) "Closing Price" means the closing bid price during regular trading
hours of the Common Stock (in U.S. Dollars) on the Principal Trading Market, as
reported by the Reporting Service.
(vii) "Company Control Person" means each current director, executive
officer, promoter, and such other Persons as may be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act
(as defined below).
(viii) "Company Securities" means shares of Common Stock or securities
convertible into and/or rights exercisable for the issuance of shares of Common
Stock.
(ix) "Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures (including, if relevant, accrued interest on the
Debentures so converted).
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(x) "Disclosure Letter" means a letter dated the date hereof from the
Company to the Lenders arranged in sections corresponding to the identified
Sections of this Agreement; provided that any matter set forth in any section of
the Disclosure Letter shall, unless the context otherwise requires, be deemed
set forth for all purposes of the Disclosure Letter.
(xi) "Effective Date" means the effective date of the Registration
Statement.
(xi) "Escrow Agent" means the escrow agent identified in the Joint
Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions").
(xiii) "Escrow Funds" means the Purchase Price delivered to the Escrow
Agent as contemplated by Sections 1(c) and (d) hereof.
(xiv) "Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
(xv) "Fixed Conversion Price" shall have the meaning ascribed to it in
the Debenture.
(xvi) "Holder" means the Person owning or having the right to acquire
Registrable Securities or any permitted transferee of a Holder.
(xvii) "Last Audited Date" means December 31, 2004.
(xviii) "Lender Control Person" means each current director, executive
officer, promoter, and such other Persons as may be deemed in control of a
Lender pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
(xix) "Material Adverse Effect" means an event or combination of
events, which individually or in the aggregate, would reasonably be expected to
(w) adversely affect the legality, validity or enforceability of the Securities
or any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, or financial condition of the
Company and its subsidiaries, taken as a whole, or (y) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
of the Transaction Agreements or the transactions contemplated thereby.
(xx) "New Transaction" means the sale by the Company of Securities
consummated after the date hereof; provided that a New Transaction shall not
include (1) the issuance of Company Securities upon the exercise or conversion
of options, warrants or convertible securities outstanding on the date hereof,
(2) the sale of the Securities to a Lender, (3) the issuance of Company
Securities to employees or consultants of the Company or its subsidiaries or (4)
the sale of Company Securities set forth on Schedule 1 hereto.
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(xxi) "Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
(xxii) "Principal Trading Market" means the OTC Electronic Bulletin
Board.
(xxiii) "Registrable Securities" shall have the meaning ascribed to it
in the Registration Rights Agreement.
(xxiv) "Registration Rights Agreement" means the Registration Rights
Agreement attached hereto as Annex IV.
(xxv) "Registration Statement" means a registration statement of the
Company under the Securities Act covering Registrable Securities.
(xxvi) "Reporting Service" means Bloomberg LP or if that service is not
then reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by the Holders of more than
50% of the outstanding Debentures at such time and reasonably acceptable to the
Company.
(xxvii) "Securities" means the Debentures, the Warrants, and the
Shares.
(xxviii) "Security Agreement" means the Security Agreement attached
hereto as Annex VIII.
(xxix) "Shares" means the shares of Common Stock representing any or
all of the Conversion Shares and the Warrant Shares.
(xxx) "State of Incorporation" means Delaware.
(xxxi) "Trading Day" means any day during which the Principal Trading
Market shall be open for business.
(xxxii) "Transaction Agreements" means the Securities Purchase
Agreement, the Debentures, the Security Agreement, the Joint Escrow
Instructions, the Registration Rights Agreement, and the Warrants and includes
all ancillary documents referred to in those agreements.
(xxxiii) "Variable Conversion Rate" shall have the meaning ascribed to
it in the Debenture. (xxxiv) "Warrant Shares" means the shares of Common Stock
issuable upon exercise of the Warrants.
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c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) Each Lender shall pay such Lender's applicable Purchase Price by
delivering immediately available good funds in United States Dollars to the
Escrow Agent no later than the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event promptly
following payment by a Lender to the Escrow Agent of the Purchase Price, the
Company shall deliver the Certificates, each duly executed on behalf of the
Company and issued in the name of such Lender, to the Escrow Agent.
(iii) By signing this Agreement, each Lender and the Company, subject
to acceptance by the Escrow Agent, agrees to all of the terms and conditions of,
and becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
d. METHOD OF PAYMENT. Payment into escrow of the Purchase Price shall
be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx LLP
Account No.: 637-0000000
Re: AVDI Transaction
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each Lender represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting such Lender's right to sell the Shares pursuant to
a Registration Statement or otherwise to sell any of the Securities in
compliance with the 1933 Act, such Lender is purchasing the Securities and will
be acquiring the Shares for its own account for investment only and not with a
view towards the public sale or distribution thereof and not with a view to or
for sale in connection with any distribution thereof.
b. Such Lender is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its Affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the loss of the entire Purchase Price.
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c. All subsequent offers and sales of the Securities by such Lender
shall be made pursuant to registration of the Shares under the 1933 Act or
pursuant to an exemption from registration.
d. Such Lender understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and such Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of such Lender to acquire the Securities.
e. Such Lender and its advisors, if any, have been furnished with or
have been given access to all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities and the offer of the Shares which have been requested by such Lender,
including those set forth on ANNEX V hereto. Such Lender and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, such Lender has also had the
opportunity to obtain and to review the Company's filings on XXXXX listed on
ANNEX VII hereto (the documents listed on such Annex VII, to the extent
available on XXXXX or otherwise provided to such Lender as indicated on said
Annex VII, collectively, the "Company's SEC Documents").
f. Such Lender understands that its investment in the Securities
involves a high degree of risk. In addition, such Lender understands that the
Debenture is not convertible into, and the Warrants are not exercisable for,
shares of Common Stock unless and until the shareholders of the company holding
a majority of the outstanding shares of Common Stock on the relevant record date
approve the Certificate of Incorporation Amendment and that such shareholders
have no obligation to effect such approval.
g. Such Lender hereby represents that, in connection with its purchase
of the Securities, it has not relied on any statement or representation by the
Company or any of their respective officers, directors and employees or any of
their respective attorneys or agents, except as specifically set forth herein.
h. Such Lender understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
i. This Agreement and the other Transaction Agreements to which such
Lender is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of such Lender and are
valid and binding agreements of such Lender enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
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j. Such Lender has taken no action which would give rise to any claim
by any Person for brokerage commission, finder's fees or similar payments by the
Company relating to this Agreement or the transactions contemplated hereby. The
Company shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this paragraph that may be due in connection with the transactions
contemplated hereby. Such Lender shall indemnify and hold harmless each of the
Company, its employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when incurred.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
the Lenders as of the date hereof and as of the Closing Date that, except as
otherwise provided in the Disclosure Letter hereto or in the Company's SEC
Documents:
a. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no preemptive
rights of any shareholder of the Company, as such, to acquire the Debentures,
the Warrants or the Shares. No party other than a Lender has a currently
exercisable right of first refusal which would be applicable to any or all of
the transactions contemplated by the Transaction Agreements.
b. STATUS. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Common Stock is quoted on the Principal Trading Market. The Company
has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such quotation on the Principal Trading
Market, and the Company has maintained all requirements on its part for the
continuation of such quotation.
c. AUTHORIZED SHARES. The authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, $0.0001 par value per share,
of which approximately 82,328,223 shares are outstanding as of March 1, 2005,
and (ii) 1,000,000 shares of Preferred Stock. All issued and outstanding shares
of Common Stock have been duly authorized and validly issued and are fully paid.
After the Certificate of Incorporation Amendment Filing Date the Company will
have sufficient authorized and unissued shares of Common Stock as may be
necessary to effect the issuance of the Shares on such date. Except as set forth
on Schedule 3 (c), there were no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
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any right to subscribe for any shares of capital stock of the Company. All of
the outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable. On the Certificate
of Incorporation Amendment Filing Date the Shares will be duly authorized and,
when issued upon conversion of, or as interest on, the Debentures or upon
exercise of the Warrants, each in accordance with its respective terms, will be
duly and validly issued, fully paid and non-assessable and, except to the
extent, if any, provided by the law of the State of Incorporation, will not
subject the Holder thereof to personal liability by reason of being such Holder.
d. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each of the
other Transaction Agreements, and the transactions contemplated thereby, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Debentures,
the Warrants and each of the other Transaction Agreements, when executed and
delivered by the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement and
each of the other Transaction Agreements by the Company, the issuance of the
Debentures and the Warrants, and the consummation by the Company of the other
transactions contemplated by this Agreement, the Debentures, the Warrants and
the other Transaction Agreements do not and will not conflict with or result in
a breach by the Company of any of the terms or provisions of, or constitute a
default under (i) the certificate of incorporation or by-laws of the Company,
each as currently in effect, (ii) any indenture, mortgage, deed of trust, or
other material agreement or instrument to which the Company is a party or by
which it or any of its properties or assets are bound, including any listing
agreement for the Common Stock except as herein set forth, or (iii) to its
knowledge, any existing applicable law, rule, or regulation or any applicable
decree, judgment, or order of any court, United States federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have or result in a Material Adverse
Effect.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Lenders as
contemplated by this Agreement, except for approval by the shareholders of the
Company holding a majority of the outstanding shares of Common Stock on the
relevant record date of the Certificate of Incorporation Amendment and such
authorizations, approvals and consents that have been obtained.
g. FILINGS. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading
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h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date, there has
been no material adverse change and no Material Adverse Effect, except as
disclosed in the Company's SEC Documents. Since the Last Audited Date, except as
provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any material debts owed to the Company by any third party or material
claims of the Company against a third party, except in the ordinary course of
business consistent with past practices; (v) suffered any substantial losses or
waived any rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of existing business; (vi)
made any increases in employee compensation, except in the ordinary course of
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions and other facts known to the public generally or as
disclosed in the Company's SEC Documents) that has not been disclosed in writing
to the Lenders that would reasonably be expected to have or result in a Material
Adverse Effect.
j. ABSENCE OF LITIGATION. Except as disclosed in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company before or by any
governmental authority or nongovernmental department, commission, board, bureau,
agency or instrumentality or any other person, wherein an unfavorable decision,
ruling or finding would have a Material Adverse Effect or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements. The
Company is not aware of any valid basis for any such claim that (either
individually or in the aggregate with all other such events and circumstances)
could reasonably be expected to have a Material Adverse Effect. Except as
disclosed in the Company's SEC Documents, there are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse Effect.
k. ABSENCE OF EVENTS OF DEFAULT. Except as disclosed in the Company's
SEC Documents, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a Material Adverse Effect.
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l. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR EVENTS. To the
knowledge of the Company, none of the following has occurred during the past
five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such Company
Control Person, or any partnership in which he was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two years before
the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other Person
regulated by the Commodity Futures Trading Commission ("CFTC")
or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for more than 60 days
the right of such Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or
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(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended, or
vacated.
m. PRIOR ISSUES. [Intentionally Omitted]
n. NO UNDISCLOSED LIABILITIES OR EVENTS. To the knowledge of the
Company, the Company has no liabilities or obligations other than those
disclosed in the Transaction Agreements or the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since the Last Audited
Date, or which individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstances has occurred or exists with
respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
Except as disclosed in the Company's SEC Documents, there are no proposals
currently under consideration or currently anticipated to be under consideration
by the Board of Directors or the executive officers of the Company which
proposal would (X) change the certificate of incorporation or other charter
document or by-laws of the Company, each as currently in effect, with or without
shareholder approval, which change would reduce or otherwise adversely affect
the rights and powers of the shareholders of the Common Stock or (Y) materially
or substantially change the business, assets or capital of the Company,
including its interests in subsidiaries.
o. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time within the past six months made any offer or sales of
any security or solicited any offers to buy any security under circumstances
that would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of the
Debentures may have a dilutive effect on the ownership interests of the other
shareholders (and Persons having the right to become shareholders) of the
Company. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
they have such a potential dilutive effect. The board of directors of the
Company has concluded, in its good faith business judgment that such issuance is
in the best interests of the Company. The Company specifically acknowledges that
its obligation to issue the Shares upon conversion of the Debentures and upon
exercise of the Warrants is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company, and the Company will honor every Notice of
Conversion (as defined in the Debentures) relating to the conversion of the
Debentures, and every Notice of Exercise (as contemplated by the Warrants),
unless the Company is subject to an injunction (which injunction was not sought
by the Company) prohibiting the Company from doing so.
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r. TRADING IN SECURITIES. The Company specifically acknowledges that,
except to the extent specifically provided herein or in any of the other
Transaction Agreements (but limited in each instance to the extent so
specified), the Lenders retain the right (but are not otherwise obligated) to
buy, sell, engage in hedging transactions or otherwise trade in the securities
of the Company, including, but not necessarily limited to, the Securities, at
any time before, contemporaneous with or after the execution of this Agreement
or from time to time, but only, in each case, in any manner whatsoever permitted
by applicable federal and state securities laws.
s. FEES TO BROKERS, FINDERS AND OTHERS. Except for payment of fees to
Persons previously disclosed to the Lenders, payment of which is the sole
responsibility of the Company pursuant to the terms of the Escrow Agreement, the
Company has taken no action which would give rise to any claim by any Person for
brokerage commission, finder's fees or similar payments by a Lender relating to
this Agreement or the transactions contemplated hereby. Each Lender shall have
no obligation with respect to such fees or with respect to any claims made by or
on behalf of other Persons for fees of a type contemplated in this paragraph
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless each of the Lenders, its employees,
officers, directors, agents, and partners, and their respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Each Lender acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) such Lender shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
12
b. RESTRICTIVE LEGEND. Each Lender acknowledges and agrees that, until
such time as the Common Stock has been registered under the 1933 Act and sold in
accordance with an effective Registration Statement or otherwise in accordance
with another effective registration statement, the certificates and other
instruments representing any of the Securities (including the Shares) shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. FILINGS. The Company undertakes and agrees to make all necessary
filings required to be made by the Company in connection with the sale of the
Debentures and Warrants to the Lenders under any United States laws and
regulations applicable to the Company, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Lenders promptly after such
filing.
d. REPORTING STATUS. So long as a Lender beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act in a time frame that permits it
to maintain the continued quotation and trading of its Common Stock (including,
without limitation, all Registrable Securities) on the Principal Trading Market
or a listing on the NASDAQ/Small Cap or National Markets and, to the extent
applicable to it, shall take all reasonable action under its control to ensure
that adequate current public information with respect to the Company, as
required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly
available, and shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination. The Company will take all reasonable
action under its control to maintain the continued quotation and trading of its
Common Stock (including, without limitation, all Registrable Securities) on the
Principal Trading Market or a listing on the NASDAQ/Small Cap or National
Markets and, to the extent applicable to it, will comply in all material
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of the Principal Trading Market and/or the National Association
of Securities Dealers, Inc., as the case may be, at least through the date which
is thirty (30) days after the later of the date on which all of the Debentures
have been converted or all of the Warrants have been exercised or have expired.
e. USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Securities) for general
corporate purposes.
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f. WARRANTS. In respect of an aggregate of $875,000 in Convertible
Debentures purchased by the Lenders, the Company agrees to issue to each Lender
on the Closing Date such Lender's pro rata portion of transferable divisible
warrants (the "Warrants") for the purchase of 12,500,000 Shares at an exercise
price of $.10. The Warrants will expire on the second annual anniversary of the
Effective Date. The Warrant shall be in the form annexed hereto as ANNEX VI.
g. AVAILABLE SHARES. After the Certificate of Incorporation Amendment
Filing Date the Company shall have at all times authorized and reserved for
issuance, free from preemptive rights, a number of shares at least equal to the
sum of (x) one hundred and fifty percent (150%) of the number of shares of
Common Stock issuable as may be required to satisfy the conversion rights of the
Holders of all outstanding Convertible Debentures (including interest thereon) ,
plus (y) the number of shares issuable upon exercise of all outstanding Warrants
held by all Holders (in each case, whether such Convertible Debentures or
Warrants were originally issued to the Holder, a Lender or to any other Holder
or Lender). For the purposes of such calculations, the Company should assume
that all such Debentures were then convertible and all Warrants were then
exercisable without regard to any restrictions which might limit any Lender's
right to convert any of the Convertible Debentures or exercise any of the
Warrants held by any Holder.
h. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties agrees that
it will not disseminate any information relating to the Transaction Agreements
or the transactions contemplated thereby, including issuing any press releases,
holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless the inclusion of such statement
is required, in the opinion of legal counsel for such party, in order for such
party to comply with its disclosure obligations under applicable law. In
furtherance of the foregoing, the Company will provide to the Lenders drafts of
the applicable text of any filing intended to be made with the SEC which refers
to the Transaction Agreements or the transactions contemplated thereby as soon
as practicable (but at least two (2) business days before such filing will be
made and will not include in such filing any statement or statements or other
material to which the other party reasonably objects , unless the inclusion of
such statement is required, in the opinion of legal counsel for such party, in
order for such party to comply with its disclosure obligations under applicable
law. Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
(but any descriptive text accompanying or part of such filing shall be subject
to the other provisions of this paragraph). Notwithstanding, but subject to, the
foregoing, the Company intends to file within four business days following the
Closing Date a Current Report on Form 8-K referring to the transactions
contemplated by the Transaction Documents.
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i. HEDGING TRANSACTIONS. Each Lender agrees that as long as it or any
of its Affiliates holds any Securities it shall not, and such Lender shall cause
it Affiliates not to, hold any short sale position or any hedging position with
respect to any Company Securities in excess of $25,000; provided that,
notwithstanding the foregoing, any such Lender or such Affiliates may enter into
any such short position or hedging position (i) prior to the Effective Date, at
any time during any period that that the bid price for the Common Stock as
reported by the Reporting Service is equal to or greater than $0.25 (and such
Lender or such Affiliate shall be entitled to hold such short position or
hedging position entered into pursuant to this clause (i) even if the bid price
for the Common Stock declines to less than $0.25) and (ii) in connection with a
conversion under the Debenture or an exercise of the Warrants. Each Lender
agrees that it shall not transfer any Securities unless the transferee thereof
explicitly agrees in writing to be bound by the terms hereof, except in
connection with transfers of Shares that are not Registrable Securities. The
Company agrees that unless and until (i) the Company has affirmatively
demonstrated by the use of specific clear and convincing evidence that a Lender
has traded in securities of the Company in violation of applicable federal
securities laws and (ii) there has been issued against such Lender a final
non-appealable decision from a court of competent jurisdiction to the effect
that such Lender has violated applicable federal securities laws with respect to
its trading of the Company's securities, such Lender shall be assumed to be in
compliance with such laws and the Company shall remain obligated to fulfill all
of its obligations under each of the Transaction Agreements; provided, further,
that the Company shall under no circumstances be entitled to request or demand
that a Lender affirmatively demonstrate that it has not engaged in any such
violations as a condition to the Company's fulfillment of its obligations under
any of the Transaction Agreements and shall not assert, whether as an
affirmative claim or a defense to any claim made against the Company, that such
Lender's failure to demonstrate such absence of such violations (including, but
not limited to, its failure to provide any trading or other records, it being
specifically agreed that the Company, directly or indirectly, will request such
Lender or any of its agents, advisors, brokers or representatives to provide
such records in any forum) serves either as a defense to any breach of the
Company's obligations under any of the Transaction Agreements or otherwise
reflects adversely in any manner on the legality of any action taken by such
Lender.
j. CERTAIN AGREEMENTS.
(i) (A) The term "Lower Price Transaction" means a New Transaction
consummated during the period (the "New Transaction Period") from the Closing
Date and continuing through and including the Final Lock-up Date (as defined
below), where (x) either the lowest fixed purchase price of any shares of Common
Stock contemplated in the New Transaction or the lowest fixed conversion price
of any securities of the Company convertible or exchangeable into Common Stock
which would be applicable under the terms of the New Transaction is, or by its
terms is, below the Fixed Conversion Price or (y) if such purchase price or
conversion price is determined by multiplying a market price of the Common Stock
by a percentage, such percentage is below the Variable Conversion Rate (the
"Lower Percentage").
(B) The term "Final Lock-up Date" means the date which is the number of
days after the Effective Date equal to the sum of (X) ninety (90) days, plus (Y)
the number of days, if any, during which sale of Registrable Securities was
suspended after the Effective Date.
15
(ii) The Company covenants and agrees that, if there is a Lower Price
Transaction during the New Transaction Period, then;
(A) if such transaction is of the type contemplated by Section
4(j)(i)(A)(x), then the Fixed Conversion Price on any principal amount of the
Debentures which has not been converted as of the relevant date shall be
adjusted to an amount (the "Adjusted Conversion Price") equal to the lower of
(1) the lowest fixed purchase price of any shares of the Common Stock
contemplated in the Lower Price Transaction or (2) the lowest fixed conversion
price of any securities of the Company convertible or exchangeable into Common
Stock which would be applicable under the terms of the Lower Price Transaction;
(B) if such transaction is of the type contemplated by Section
4(j)(ii)(A)(y), then the Variable Conversion Rate on any principal amount of the
Debentures which has not been converted as of the relevant date shall be
adjusted to an amount equal to the Lower Percentage; and
(C) the exercise price on all unexercised Warrants (unless the Adjusted
Exercise Price (as defined in the Warrants) is then in effect) shall be adjusted
to equal the lowest of (1) the then existing applicable exercise price of such
Warrant, and (2) 143% of the Adjusted Conversion Price.
(iii) For purposes of this Section 4(j), the conversion price for which
each share of Common Stock shall be deemed to be issued upon issuance or sale of
any securities convertible, exercisable or exchangeable into Common Stock shall
be determined by dividing (x) the total consideration, if any, received by the
Company as consideration for such securities plus the minimum aggregate of
additional consideration, if any, ever payable to the Company upon the
conversion, exercise or exchange of such securities by (y) the maximum number of
shares of Common Stock ever issuable (except pursuant to anti-dilution
provisions associated with such securities on account of events that are unknown
on such date) upon conversion, exercise or exchange of such securities
k. APPOINTMENT TO ADVSORY BOARD. Until the later of (x) the twelve
month anniversary of the date hereof and (y) the date the Lenders hold less than
$75,000 of the Debentures, the Company will appoint to its Advisory Board, when
constituted, such person as may be designated by the Lenders holding a majority
of the Debentures (the "Representative"), which initially shall be Xxxx Xxxxx,
provided that such Representative meets the qualifications generally applicable
to all members of such Advisory Board to serve on such Advisory Board and
executes a customary confidentiality agreement with respect to the information
to be received in such capacity on such Advisory Board.
16
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company warrants that, with respect to the Securities, other
than the stop transfer instructions to give effect to Section 4(a) hereof, it
will give its transfer agent no instructions inconsistent with instructions to
issue Common Stock from time to time upon conversion of the Debentures in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of a
Lender or its nominee and in such denominations to be specified by such Lender
in connection with each conversion of the Debentures. Except as so provided, the
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way a Lender's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If a Lender provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
such Lender of any of the Securities in accordance with clause (1)(B) of Section
4(a) of this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Conversion Shares, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without legend in such name and in such denominations as specified
by such Lender.
(b) Subject to the provisions of this Agreement, the Company will
permit the Lenders to exercise its right to convert the Debentures in the manner
contemplated by the Debentures and to exercise the Warrants in the manner
contemplated by the Warrants.
c. (i) The Company understands that a delay in the issuance of the
Shares beyond the Delivery Date (as defined in the Debenture) could result in
economic loss to a Lender. As compensation to the Lenders for such loss, the
Company agrees, commencing thirty (30) days after the Certificate of
Incorporation Amendment Filing Date, to pay late payments to the Lenders for
late issuance of Shares upon conversion in accordance with the following
schedule (where "No. Business Days Late" refers to the number of Trading Days
which is beyond four (4) Trading Days after the Delivery Date): (1)
_______________
(1) Example: Notice of Conversion is delivered on Monday, March 6, 2006. The
Delivery Date would be Thursday March 9 (the third Trading Day after such
delivery). If the certificate is delivered by Wednesday, March 15 (4 Trading
Days after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on March 16, that is 1 "Business Day Late" in the
table below; if delivered on March 21, that is 4 "Business Days Late" in the
table.
17
No. Business Days Xxxx Xxxx Payment For Each $10,000
of Principal or Interest Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lenders' exclusive remedy (other than the
following provisions of this Section 5(c), the provisions of the immediately
following Section 5(d) of this Agreement and Section 12(c) of the Debenture) for
such delay. Furthermore, in addition to any other remedies which may be
available to a Lender, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock by close of business on the
Delivery Date, such Lender will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company, whereupon the
Company and such Lender shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion; provided, however,
that an amount equal to any payments contemplated by this Section 5(c) which
have accrued through the date of such revocation notice shall remain due and
owing to the Converting Holder (as defined below) notwithstanding such
revocation. Anything in the foregoing provisions of this paragraph (c) to the
contrary notwithstanding, the total amount payable by the Company under this
paragraph (c) shall be reduced by an amount equal to fifty percent (50%) of any
Buy-In Adjustment Amount (as defined below) actually paid by the Company to the
Holder (but not by more than the total amount due without regard to the
provisions of this sentence).
18
(d) If, by the relevant Delivery Date, commencing thirty (30) days
after the Certificate of Incorporation Amendment Filing Date, the Company fails
for any reason to deliver the Shares to be issued upon conversion of a Debenture
and after such Delivery Date, the Holder of the Debentures being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
addition to and not in lieu of the amounts due under Section 5(c) hereof (but in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
(e) In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
(f) The holder of any Debentures shall be entitled to exercise its
conversion privilege with respect to the Debentures notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362 in respect of the conversion of the Debentures.
The Company agrees, without cost or expense to such holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
(g) The Company will authorize its transfer agent to give information
relating to the Company directly to a Lender or such Lender's representatives
upon the request of such Lender or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to such Lender in connection with a Notice of Conversion or
exercise of a Warrant, or (ii) the number of outstanding shares of Common Stock
of all shareholders as of a current or other specified date. On the Closing
Date, the Company will provide such Lender with a copy of the authorization so
given to the transfer agent.
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6. CLOSING DATE.
a. The closing date (the "Closing Date") shall occur on the date which
is the first Trading Day after each of the conditions contemplated by Sections 7
and 8 hereof shall have either been satisfied or been waived by the party in
whose favor such conditions run.
Each closing of the purchase and issuance of Debentures and Warrants
shall occur on the relevant Closing Date at the offices of the Escrow Agent and
shall take place no later than 3:00 P.M., New York time, on such day or such
other time as is mutually agreed upon by the Company and the Lenders.
Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the relevant Escrow Funds to the Company and
to release the other relevant Escrow Property on the relevant Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Each Lender understands that the Company's obligation to sell the
Debentures and the Warrants to such Lender pursuant to this Agreement on the
relevant Closing Date is conditioned upon:
The execution and delivery of this Agreement and the Registration
Rights Agreement by such Lender;
Delivery by such Lender to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Securities in accordance
with this Agreement;
The accuracy on such Closing Date of the representations and warranties
of such Lender contained in this Agreement, each as if made on such date, and
the performance by such Lender on or before such date of all covenants and
agreements of such Lender required to be performed on or before such date; and
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
8. CONDITIONS TO THE LENDERS' OBLIGATION TO PURCHASE.
The Company understands that the Lenders' obligation to purchase the
Debentures and the Warrants on the relevant Closing Date is conditioned upon:
The execution and delivery of this Agreement and the other Transaction
Agreements by the Company;
20
Delivery by the Company to the Escrow Agent of the Certificates in
accordance with this Agreement;
On the Closing Date, the Lenders shall have received a Secretary's
Certificate and Officer's Certificate from the Company, dated the Closing Date
in form, scope and substance reasonably satisfactory to the Lenders,
substantially to the effect set forth in ANNEX III attached hereto;
The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
From and after the date hereof to and including such Closing Date, each
of the following conditions will remain in effect: (i) the trading of the Common
Stock shall not have been suspended by the SEC or on the Principal Trading
Market; (ii) trading in securities generally on the Principal Trading Market
shall not have been suspended or limited; (iii), no minimum prices shall been
established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any material adverse change in any financial market
that, in the reasonable judgment of the Lenders, makes it impracticable or
inadvisable to purchase the Debentures.
9. INDEMNIFICATION.
a. (i) The Company agrees to indemnify and hold harmless each Lender
and its officers, directors, employees, and agents, and each Lender Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, "Damages"), joint or several, and any action in respect
thereof to which a Lender, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Lender Control Person
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from a Lender's failure to perform any covenant or agreement contained in this
Agreement or such Lender's or its officers, directors, employees, agents or
Lender Control Persons negligence, recklessness or bad faith in performing its
obligations under this Agreement.
21
(ii) If (x) a Lender becomes involved in any capacity in any action,
proceeding or investigation brought by any stockholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements (other than
the Registration Rights Agreement), or if a Lender is impleaded in any such
action, proceeding or investigation by any Person, or (y) a Lender becomes
involved in any capacity in any action, proceeding or investigation brought by
the SEC, any self-regulatory organization or other body having jurisdiction,
against or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements (other than the Registration Rights Agreement), or if a
Lender is impleaded in any such action, proceeding or investigation by any
Person, then in any such case, other than by reason of such Lender's actions
(other than such Lender's execution of the Transaction Agreements to which it is
a signatory, the payment of the Purchase Price, and/or the exercise of any of
such Lender's rights under any one or more of the Transaction Agreements), the
Company hereby agrees to indemnify, defend and hold harmless such Lender from
and against and in respect of all Damages resulting from, imposed upon or
incurred by such Lender, directly or indirectly, and reimburse such Lender for
its reasonable legal and other expenses (including the cost of any investigation
and preparation) for a single firm of counsel incurred in connection therewith,
as such expenses are incurred. The indemnification and reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of a Lender who are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and Lender Control
Persons (if any), as the case may be, of a Lender and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, each Lender, any such Affiliate and
any such Person. The Company also agrees that neither the Lenders nor any such
Affiliate, partner, director, agent, employee or Lender Control Person shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
this Agreement or the other Transaction Agreements, other than by reason of a
Lender's actions (other than a Lender's execution of the Transaction Agreements
to which it is a signatory, the payment of the Purchase Price, and/or the
exercise of any Lender's rights under any one or more of the Transaction
Agreements).
b. All claims for indemnification by any Indemnified Party (as defined
below) under this Section 9 shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any Person
claiming indemnification under any provision of this Section 9 (an "Indemnified
Party") might seek indemnity under Section 9(a) is asserted against or sought to
be collected from such Indemnified Party by a Person other than a party hereto
or an Affiliate thereof (a "Third Party Claim"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of this Section 9 against any Person (the "Indemnifying Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim Notice")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under this
Section 9 and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim. The
following provisions shall also apply.
22
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this Section 9(b), then the Indemnifying Party shall have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party,
at the sole cost and expense of the Indemnifying Party, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a
final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party
in the case of any settlement that provides for any relief other than
the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9(a)). The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the first sentence of this subparagraph (x), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this
subparagraph (x), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect to
such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third
Party Claim at any time if it irrevocably waives its right to indemnity
under Section 9(a) with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 9(b), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying
Party fails to give any notice whatsoever within the Dispute Period,
then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in good faith or will
23
be settled at the discretion of the Indemnified Party (with the consent
of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in subparagraph (z) below,
the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this
subparagraph (y) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control,
any defense or settlement controlled by the Indemnified Party pursuant
to this subparagraph (y), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section
9(a) or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party with respect to such Third Party
Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section
9(a) and the Indemnifying Party shall pay the amount of such Damages to
the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty
(30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
(ii) In the event any Indemnified Party should have a claim under
Section 9(a) against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9(a) specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
24
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9(a) and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Indemnity Notice, the Indemnifying Party shall be entitled to
institute such legal action as it deems appropriate.
The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.
10. JURY TRIAL WAIVER. The Company and each Lender hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the other
Transaction Agreements and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on FORUM NON CONVENIENS, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse each Lender for any
reasonable legal fees and disbursements incurred by such Lender in enforcement
of or protection of any of its rights under any of the Transaction Agreements.
Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
25
A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter
hereof.
12. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by domestic or international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
Company: Advanced Technology Industries, Inc.
000 Xxxxxxx Xxxxxx, #00X
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxx
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
26
with a copy to:
Xxxxxxx X. Xxxxxx , Esq.
Ropes & Xxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Tel: 000-000-0000
Fax: 000-000-0000
Lenders: At the address set forth on the signature page of this Agreement.
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
Escrow Agent: Xxxxxxx & Xxxxxx LLP
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and each
Lender's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the payment
of the Purchase Price for a period of two years after the Closing Date, and
shall inure to the benefit of each Lender and the Company and their respective
successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
27
IN WITNESS WHEREOF, this Agreement has been duly executed by
each Lender (if an entity, by one of its officers thereunto duly authorized) as
of the date set forth below.
SIGNATURES FOR LENDERS
IN WITNESS WHEREOF, the undersigned represents that the
foregoing statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this 14th day of July,
2005.
ALPHA CAPITAL AG
By:
----------------------------------------
PURCHASE PRICE: $350,000
NUMBER OF WARRANTS: 5,000,000
By: /s/ Xxx Nebenzhal
----------------------------------------
Xxx Nebenzhal
PURCHASE PRICE: $90,000
NUMBER OF WARRANTS: 1,285,714
By: /s/ Xxxx Xxxxxxxxxx
----------------------------------------
Xxxx Xxxxxxxxxx
PURCHASE PRICE: $50,000
NUMBER OF WARRANTS: 714,286
By: /s/ Xxxx Xxxxx
----------------------------------------
Xxxx Xxxxx
PURCHASE PRICE: $30,000
NUMBER OF WARRANTS: 428,571
SHALOM TORAH CENTER
By:
----------------------------------------
PURCHASE PRICE: $25,000
NUMBER OF WARRANTS: 357,143
By: /s/ Xxxxxx Xxxxxxxx
----------------------------------------
Xxxxxx Xxxxxxxx
PURCHASE PRICE: $25,000
NUMBER OF WARRANTS: 357,143
28
By: /s/ Xxxx Xxxxxxxxxx
----------------------------------------
Xxxx Xxxxxxxxxx
PURCHASE PRICE: $25,000
NUMBER OF WARRANTS: 357,143
By: /s/ Ateres Michoel
----------------------------------------
Ateres Michoel
PURCHASE PRICE: $25,000
NUMBER OF WARRANTS: 357,143
By: /s/ Xxxxx Xxxxxx
----------------------------------------
Xxxxx Xxxxxx
PURCHASE PRICE: $30,000
NUMBER OF WARRANTS: 428,571
By: /s/ Xxxxx Xxxxxx
----------------------------------------
Xxxxx Xxxxxx
PURCHASE PRICE: $50,000
NUMBER OF WARRANTS: 714,286
By: /s/ Xxxxxx Xxxxxxx
----------------------------------------
Xxxxxx Xxxxxxx
PURCHASE PRICE: $25,000
NUMBER OF WARRANTS: 357,143
NITE CAPITAL LP
By:
----------------------------------------
PURCHASE PRICE: $150,000
NUMBER OF WARRANTS: 2,142,857
29
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
By:________________________
Title:______________________
Date: July 14, 2005
30
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III SECRETARY'S CERTIFICATE
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI- FORM OF WARRANT
ANNEX VII COMPANY'S SEC DOCUMENTS AVAILABLE ON XXXXX
ANNEX VIII SECURITY AGREEMENT
31
