EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 6, 2006
(this "Agreement"), is entered into by and between RIM SEMICONDUCTOR COMPANY, a
Utah corporation with headquarters located at ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and each individual or entity named on an
executed counterpart of the signature page hereto (each such signatory is
referred to as a "Buyer") (each agreement with a Buyer being deemed a separate
and independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer [each,
an "Other Buyer"] under such agreement and the Transaction Agreements, as
defined below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded, INTER alia,
by Rule 506 under Regulation D ("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 Buyer wishes to lend to the Company, subject to
and upon the terms and conditions of this Agreement and acceptance of this
Agreement by the Company, the Purchase Price (as defined below), the repayment
of which will be represented by 7% Senior Secured Convertible Debentures Series
06-01C of the Company (the "Convertible Debentures"), which Convertible
Debentures will be convertible into shares of Common Stock, $.001 par value per
share, 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 Buyer hereby agrees to loan to
the Company the principal amount set forth on the Buyer's signature page of this
Agreement (the "Purchase Price"), out of the aggregate amount being loaned by
all Buyers of US $_________(1) (the "Aggregate Purchase Price").
The obligation to repay the loan from the Buyer shall be evidenced by the
Company's issuance of one or more Convertible Debentures to the Buyer in such
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(1) Amount to be inserted at Closing Date (as defined below), up to $6,000,000.
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principal amount (the Convertible Debentures issued to the Buyer, the
"Debentures"). Each Debenture (i) shall provide for a Conversion Price (as
defined below), which price may be adjusted from time to as provided in the
Debenture, (ii) shall have the terms and conditions of, and be substantially in
the form attached hereto as, ANNEX I, and (iii) shall be secured pursuant to the
terms of the Security Interest Agreement substantially in the form annexed
hereto as ANNEX VIII (the "Security Interest Agreement").(2)
(ii) The loan to be made by the Buyer and the issuance of the
Debentures and the Warrants (collectively, the "Purchased Securities") to the
Buyer are sometimes referred to herein and in the other Transaction Agreements
as the purchase and sale of the Debentures and the Warrants.
b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
"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.
"Authorized Share Increase" means the approval of an amendment
to the Company's Certificate of Incorporation, as amended to date, to be
presented to the stockholders of the Company at the Company's next annual or
special stockholders meeting, increasing the authorized shares of the Common
Stock to 900,000,000 shares.
"Buyer Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Buyer
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Certificate of Incorporation" means the Certificate of
Incorporation, Articles of Incorporation or other charter document (howsoever
denominated) of the Company, as amended to date.
"Certificates" means the (x) the original ink-signed
Debentures and (y) the original ink-signed Warrants, each duly executed by the
Company and issued in the name of the Buyer on the Closing Date.
"Closing Date" means the date of the closing of the purchase
and sale of the Purchased Securities.
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(2) By signing this Agreement, the Buyer subject to acceptance by the Agent
named in the Security Interest Agreement, agrees to all of the terms and
conditions of, and becomes a party to, the Security Interest Agreement, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
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"Closing Price" means the 4:00 P.M. closing bid price of the
Common Stock on the Principal Trading Market on the relevant Trading Day(s), as
reported by the Reporting Service for the relevant date.
"Company Control Person" means each 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.
"Company Principal's Agreement" has the meaning ascribed to in
Section 4(h).
"Company's SEC Documents" means the Company's filings on the
SEC's ▇▇▇▇▇ system which are listed on ANNEX VI annexed hereto, to the extent
available on ▇▇▇▇▇ or otherwise provided to the Buyer as indicated on said Annex
VI.
"Conversion Certificates" means certificates representing the
Conversion Shares or the Warrant Shares, as the case may be.
"Conversion Date" means the date a Holder submits a Notice of
Conversion, as provided in the Debentures.
"Conversion Price" means the lower of (i) the Variable
Conversion Price or (ii) the Lowest Fixed Conversion Price.
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and/or in payment of accrued interest, as
contemplated in the Debentures.
"Converting Holder" means the Holder of Debentures or
Warrants, as the case may be, who or which has submitted a Notice of Conversion
(as contemplated by the Debentures) or a Notice of Exercise (as contemplated by
the Warrants).
"Delivery Date" has the meaning ascribed to it, as may be
relevant, (x) in the Debentures (with respect to Conversion Shares), (y) in the
Warrants (with respect to Warrant Shares), or (z) in the Registration Rights
Agreement (with respect to Payment Shares).
"Disclosure Annex" means ANNEX X to this Agreement; provided,
however, that the Disclosure Annex shall be arranged in sections corresponding
to the identified Sections of this Agreement, but the disclosure in any such
section of the Disclosure Annex shall qualify other provisions in this Agreement
to the extent that it would be readily apparent to an informed reader from a
reading of such section of the Disclosure Annex that it is also relevant to
other provisions of this Agreement.
"Document Escrow Agent" means ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, the escrow
agent identified in the Joint Document Escrow Instructions attached hereto as
ANNEX II (the "Joint Escrow Instructions").
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"Effective Percentage" means, initially, thirty percent (30%),
which percentage is subject to increase as provided herein.
"Effective Date" means the date the Registration Statement
covering the Registrable Securities is declared effective by the SEC.
"Escrow Funds" means the Purchase Price delivered to the Funds
Escrow Agent as contemplated by Sections 1(c) and (d) hereof.
"Exercise Price" means the per share exercise price of the
relevant Warrant.
"Funds Escrow Agent" means American Stock Transfer & Trust
Company, the escrow agent identified in the Wire Instructions.
"Holder" means the Person holding the relevant Securities at
the relevant time.
"Issue Date Conversion Share" means the number of shares of
Common Stock equal to (x) the Purchase Price paid by the Buyer, divided by (y)
the amount which would have been the Conversion Price on the Closing Date, were
such date a Conversion Date (without regard to whether or not the Debentures
were convertible on such date in accordance with their terms).
"Last Audited Date" means October 31, 2005.
"Lowest Fixed Conversion Price" means the lowest New
Transaction Price (as defined below; as that amount may subsequently be adjusted
as provided in the Debentures or herein).
"Majority in Interest of the Holders" means one or more
Holders whose respective outstanding principal amounts of the Debentures held by
each of them, as of the relevant date, aggregate more than seventy-five percent
(75%) of the aggregate outstanding principal amounts of the outstanding
Debentures held by the Buyer and all Other Buyers on that date.
"Material Adverse Effect" means an event or combination of
events, which individually or in the aggregate, would reasonably be expected to
(x) adversely affect the legality, validity or enforceability of the Purchased
Securities or any of the Transaction Agreements, (y) 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 (z)
adversely impair the Company's ability to perform fully on a timely basis its
material obligations under any of the Transaction Agreements or the transactions
contemplated thereby.
"Maturity Date" has the meaning ascribed to it in the
Convertible Debentures.
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"New Common Stock" means shares of Common Stock and/or
securities convertible into, and/or other rights exercisable for, Common Stock,
which are offered or sold in a New Transaction.
"New Investor" means the third party investor, purchaser or
lender (howsoever denominated) in a New Transaction.
"New Transaction" means, unless consented to by a Majority in
Interest of the Holders (which consent is in the sole discretion of the Holders
and may be withheld for any reason or for no reason whatsoever),
(i) the offer or sale of New Common Stock by or on behalf of the
Company to a New Investor and/or
(ii) the grant of a security interest in or pledge of (x) any or all of
the Company's assets by the Company and/or (y) shares of the Company's
Common Stock or securities convertible into or exercisable for the
Company's Common Stock by any other party in connection with a
transaction in which the Company borrows or is otherwise obligated to
pay funds to a third party,
in a transaction offered or consummated after the date hereof; provided,
however, that it is specifically understood that the term "New Transaction" (1)
unless consented to otherwise by a Majority in Interest of the Holders (which
consent is in the sole discretion of the Holders and may be withheld for any
reason or for no reason whatsoever), includes, but is not limited to, a sale of
Common Stock or of a security convertible into Common Stock or an equity or
credit line transaction, but (2) does not include (a) the sale of the Purchased
Securities to the Buyer and the Other Buyers, (b) the issuance of Common Stock
upon the exercise or conversion of options, warrants or convertible securities
outstanding on the date hereof, or in respect of any other financing agreements
as in effect on the date hereof and identified in the Disclosure Annex (provided
the same is not amended after the date hereof) or in the Company's SEC Documents
(provided the same is not amended after the date hereof), (c) the issuance of
securities pursuant to the Company's 2000 Omnibus Securities Plan and 2001 Stock
Incentive Plan, each as in effect on the date hereof, (d) the issuance of
securities pursuant to a non-employee director stock option plan of the Company,
(e) the issuance of securities pursuant to a consultants' stock option plan of
the Company, as in effect on the date hereof, (f) the issuance of Common Stock
upon the exercise of any options or warrants referred to in the preceding
clauses of this paragraph (provided the same is not amended after the date
hereof), (g) the issuance of stock options or warrants to employees, officers or
directors of the Company or, provided that they have served in such capacity for
at least ninety (90) days, advisors or consultants of the Company; provided that
in all such events, all such shares are or are made subject to a Company
Principal's Agreement simultaneously with such issuance, or (h) the issuance of
shares to a Strategic Partner.
"Payment Shares" has the meaning ascribed to it in the
Registration Rights Agreement.
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"Person" means any living person or any entity, such as, but
not necessarily limited to, a corporation, partnership or trust.
"Placement Agent" means Pond Equities, a registered
broker-dealer.
"Principal Trading Market" means the Over the Counter Bulletin
Board or such other market on which the Common Stock is principally traded at
the relevant time, but shall not include the "pink sheets."
"Registrable Securities" has the meaning ascribed to it in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as ANNEX IV as executed by the Buyer and
the Company simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration
statement covering the Registrable Securities.
"Regular Trading Day" means the regular trading hours of a
Trading Day on the Principal Trading Market shall be open for business (as of
the date of this Agreement, such hours are, for most Trading Days, approximately
9:30AM to 4PM Eastern Time; provided, however, that certain Trading Days may
have shorter regular trading hours; and provided, further, that the regular
trading hours may be subsequently changed for the Principal Trading Market).
"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 a Majority in
Interest of the Holders and reasonably acceptable to the Company.
"Rule 144" means (i) Rule 144 promulgated under the 1933 Act
or (ii) any other similar rule or regulation of the SEC that may at any time
permit Holder to sell securities of the Company to the public without
registration.
"Securities" means the Purchased Securities and the Shares.
"Shares" means the shares of Common Stock representing any or
all of the Conversion Shares, the Warrant Shares and the Payment Shares.
"State of Incorporation" means Utah.
"Strategic Partner" means a third party, whether or not
affiliated with the Company as of the date hereof, which party (i) is engaged in
a business which is the business in which the Company is engaged or a similar,
related or complementary business, and (ii) subsequently purchases (or enters
into an agreement to purchase)equity securities of the Company (or securities
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convertible into equity securities of the Company), where such purchase is
accompanied or followed by one or more of the following: the licensing by the
Company of all or any portion of its technology to such third party, the
licensing by such third party of all or any portion of its technology to the
Company, or any other coordination of all or a portion of their respective
business activities or operations by the Company and such third party.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transaction Agreements" means this Agreement, the Debentures,
the Joint Escrow Instructions, the Registration Rights Agreement, the Disclosure
Annex, the Security Interest Agreement, and the Warrants, and includes all
ancillary documents referred to in those agreements.
"Transfer Agent" means, at any time, the transfer agent for
the Company's Common Stock.
"Variable Conversion Price" means (i) the VWAP for the twenty
(20) Regular Trading Days ending on the Trading Day immediately before the
Conversion Date, multiplied by (ii) a percentage equal to (x) one hundred
percent (100%), less (y) the Effective Percentage.
"VWAP" means the volume weighted average price of the Common
Stock on the Principal Trading Market for the relevant Regular Trading Day(s),
as reported by the Reporting Service.
"Warrants" means (i) the warrants referred to in Section 4
hereof and (ii) the Additional Warrants (as defined below), if any.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
"Wire Instructions" means the Purchase Price Wire Instructions
as provided in ANNEX XI annexed hereto.
c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Buyer shall pay the Purchase Price by delivering
immediately available good funds in United States Dollars to the Funds Escrow
Agent no later than the date prior to the Closing Date.
(ii) Within three (3) Trading Days after the Company is
notified that the Funds Escrow Agent has on deposit cleared funds from or on
behalf of one or more Buyers an aggregate amount equal to the Aggregate Purchase
Price and the Company shall have accepted the Buyer's subscription hereunder,
but in no event later than the Closing Date, the Company will deliver the
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Certificates to the Document Escrow Agent. Such Certificates shall be held in
escrow by the Document Escrow Agent as provided in the Joint Escrow
Instructions.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Document 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 to the Funds Escrow Agent as provided in the Wire
Instructions (see Annex XI).
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company, as of the date hereof and as of the Closing Date, as follows:
a. Without limiting Buyer's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, the Buyer is purchasing the Securities 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. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act,
(ii) experienced in making investments of the kind described in this Agreement
and the other Transaction Agreements, (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 other Transaction
Agreements, and to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Securities by the
Buyer shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from such registration.
d. The Buyer 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 the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
e. The Buyer 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
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sale of the Purchased Securities which have been requested by the Buyer,
including those set forth in any annex attached hereto. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has also had the opportunity to obtain and to review the Company's SEC
Documents.
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. If the Buyer is not a United States person (as defined by
Section 7701(a)(30) of the Internal Revenue Code, as currently in effect), such
Buyer hereby represents that it has satisfied itself as to the full observance
of the laws of its jurisdiction in connection with any invitation to subscribe
for the Purchased Securities or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Purchased
Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities. The Buyer's
subscription and payment for and continued beneficial ownership, if any, of the
Securities will not violate any applicable securities or other laws of the
Buyer's jurisdiction.
h. If the Buyer is an individual, then the Buyer resides in
the state or province identified in the address of the Buyer set forth on the
Buyer's signature page to this Agreement. If the Buyer is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Buyer in which its principal place of business is identified in
the address or addresses of the Buyer set forth on the Buyer's signature page to
this Agreement.
i. The Buyer hereby represents that, in connection with the
Buyer's investment or the Buyer's decision to its purchase of the Securities,
the Buyer has not relied on any statement or representation of any Person,
including any such statement or representation by the Company or the Placement
Agent or any of their respective controlling Persons, officers, directors,
partners, agents and employees or any of their respective attorneys, except as
specifically set forth herein. In furtherance of the foregoing, and not in
limitation thereof, the Buyer acknowledges that the Buyer is not relying upon
any Person, other than the Company and its controlling Persons, officers and
directors, as and to the extent specifically set forth herein, in making such
investment. The Buyer agrees that none of (i) any Other Buyer, (ii) any
controlling Persons, officers, directors, partners, agents, or employees of each
respective Other Buyer or (iii) any of their respective attorneys shall be
liable to the Buyer for any action heretofore or hereafter taken or omitted to
be taken by any of them in connection with the purchase of the Purchased
Securities or in connection with the Securities. Each of the Placement Agent,
each Other Buyer and each of their respective controlling Persons, officers,
directors, partners, agents and employees and each of their respective attorneys
is a third party beneficiary of this provision.
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j. The Buyer 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.
k. This Agreement and the other Transaction Agreements to
which the Buyer is a party, and the transactions contemplated thereby, have been
duly and validly authorized, executed and delivered on behalf of the Buyer and
are valid and binding agreements of the Buyer 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.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer as of the date hereof and as of the Closing Date that,
except as otherwise provided in the Disclosure Annex or in the Company's SEC
Documents or as separately provided to the Buyer in writing in connection with
any inquiries referred to in Section 2(e) above:
a. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Purchased Securities or the Shares. No other party 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 and 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.
(i) The authorized capital stock of the Company consists of (x)
500,000,000 shares of Common Stock, $0.001 par value per share, of which
approximately 265,663,656 are outstanding as of February 27, 2006, and (y)
15,000,000 shares of preferred stock, $0.01 par value per share, none of which
are issued or outstanding.
(ii) There are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future. If any such securities are listed on the Disclosure Annex, the number or
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amount of each such outstanding convertible security and the conversion terms
are set forth in said Disclosure Annex.
(iii) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. The Company
has sufficient authorized and unissued shares of Common Stock as may be
necessary to effect the issuance of the Shares on the Closing Date, were the
Debentures fully converted and were the Warrant fully exercised on that date.
(iv) The Shares have been duly authorized by all necessary corporate
action on the part of the Company, and, when issued on conversion of, or in
payment of interest on, the Debentures or upon exercise of the Warrants, in each
case in accordance with their respective terms, will have been duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof to
personal liability by reason of being such Holder.
(v) Notwithstanding any other representation or warranty made herein or
in any of the other Transaction Agreements, as of the date hereof and as of the
Closing Date, the Company may not have sufficient authorized unissued and
unreserved shares to be able to issue shares to the Buyer and the Other Buyers
in amount which exceeds the share issuable to honor Notices of Conversion for
fifty percent (50%) of the Debentures and Notices of Exercise of Warrants for
fifty percent (50%). The Company represents that the Board of Directors (x) has
voted to recommend to the stockholders that the Company's Certificate of
Incorporation, as currently in effect, be amended to reflect the Authorized
Share Increase, and (ii) the Company has filed with the SEC and has sent or will
send out to the Company's stockholders a notice of and proxy statement for a
stockholders meeting to be held on or about April 18, 2006 (or as soon
thereafter as is practicable) at which meeting the Authorized Share Increase
will be voted on by the stockholders. All representations, warranties and
covenants contained in this Agreement or the other Transaction Agreements are
made subject to the provisions of this paragraph (v).
d. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each
of the other Transaction Agreements, and the transactions contemplated hereby
and 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 obligations 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 Securities, 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
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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 stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except 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. Since January 1, 2005, the Company has filed all annual
and quarterly reports required to be filed by the Company with the SEC under
Section 13(a) or 15(d) of the 1934 Act.
h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been 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 stockholders 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 material tangible assets, or canceled any material debts
owed to the Company by any third party or material claims of the Company against
any third party, except in the ordinary course of business consistent with past
practices; (v) 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. To the Company's knowledge, there is no
fact known to the Company (other than general economic conditions known to the
public generally or as disclosed in the Company's SEC Documents) that has not
been disclosed in writing to the Buyer that would reasonably be expected to have
or result in a Material Adverse Effect.
12
j. ABSENCE OF LITIGATION. 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
non-governmental 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. 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 set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as defined in
the respective agreement to which the Company or its subsidiary 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.
l. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR
EVENTS. To the Company's knowledge, 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
13
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
(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. NO UNDISCLOSED LIABILITIES OR EVENTS. To the best of the
Company's knowledge, 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 circumstance 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.
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 stockholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the stockholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
n. 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 since August 1, 2005, 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.
14
o. DILUTION. The number of shares issuable on conversion of
the Debentures, upon exercise of the Warrants or pursuant to the other terms of
the Transaction Agreements may have a dilutive effect on the ownership interests
of the other stockholders (and Persons having the right to become stockholders)
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 Conversion Shares upon conversion of the
Debentures, the Warrant Shares upon exercise of the Warrants or the Payment
Shares as provided in the Registration Rights Agreement is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company, and the Company will
honor such obligations, including honoring every Notice of Conversion (as
contemplated by the Debentures), every Notice of Exercise (as contemplated by
the Warrants), and every demand for Payment Shares (as contemplated by the
Registration Rights Agreement), unless the Company is subject to an injunction
(which injunction was not sought by the Company) prohibiting the Company from
doing so.
p. FEES TO BROKERS, PLACEMENT AGENTS AND OTHERS. The Company
has taken no action which would give rise to any claim by any Person for
brokerage commission, placement agent or finder's fees or similar payments by
Buyer relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the foregoing, the Company acknowledges that it has agreed to
pay the Placement Agent's Compensation (as defined below) to the Placement Agent
in connection with the transactions contemplated hereby. Except for such fees
arising as a result of any agreement or arrangement entered into by the Buyer
without the knowledge of the Company (a "Buyer's Fee"), Buyer 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 Buyer, 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 (other than a Buyer's Fee). The term "Placement Agent's
Compensation" means, in connection with the consummation of the transactions
contemplated by this Agreement, the consideration contemplated by the Joint
Escrow Instructions.
q. DISCLOSURE. All information relating to or concerning the
Company set forth in the Transaction Agreements or in the Company's public
filings with the SEC is true and correct in all material respects and have not
omitted to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
No event or circumstance has occurred or exists with respect to the Company or
its business, properties, prospects, operations or financial conditions, which
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company.
r. CONFIRMATION. The Company confirms that all statements of
the Company contained herein shall survive acceptance of this Agreement by the
Buyer for a period of three (3) years from the Closing Date. The Company agrees
15
that, if, to the knowledge of the Company, any events occur or circumstances
exist prior to the release of the Escrow Funds to the Company which would make
any of the Company's representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Buyer (directly or through
its counsel, if any) and the Document Escrow Agent in writing prior to such date
of such fact, specifying which representation, warranty or covenant is affected
and the reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS.
(i) The Buyer 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) the Buyer 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 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.
(ii) In addition to the foregoing, and not in lieu thereof,
the Buyer agrees that, without the express written consent of the Company in
each instance, it will not transfer any of the Purchased Securities to any
Person (x) which is known to the Buyer to be in substantially the same business
as the Company or which the Company reasonably identifies as a competitor, or
(y) which is known to be a subsidiary or affiliate of such a Person.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that,
until such time as the relevant Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement, and may be sold in
accordance with an effective Registration Statement or otherwise in accordance
with another effective registration statement, or until such Shares can
otherwise be sold without restriction, whichever is earlier, the certificates
and other instruments representing any of the Securities 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.
16
c. FILINGS. The Company undertakes and agrees to make all
filings required to be made by it in connection with the sale of the Securities
to the Buyer under the 1933 Act, the 1934 Act or any United States state
securities laws and regulations thereof applicable to the Company or by any
domestic securities exchange or trading market, and, unless such filing is
publicly available on the SEC's ▇▇▇▇▇ system (via the SEC's web site at no
additional charge), to provide a copy thereof to the Buyer promptly after such
filing. Reference is made to the Section titled "Publicity, Filings, Releases,
Etc." below.
d. REPORTING STATUS. So long as the Buyer beneficially owns
any of the Purchased Securities and for at least twenty (20) Trading Days
thereafter, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, 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 listing and
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,
applicable to it at least through the date which is sixty (60) days after the
later of the date on which (x) all of the Debentures have been converted or have
been paid in full or (y) all of the Warrants have been exercised or have
expired.
e. USE OF PROCEEDS. The Company will use the net proceeds
received hereunder (excluding amounts to be applied to the fees of the Funds
Escrow Agent, the Document Escrow Agent and the Placement Agent Compensation, as
contemplated by the Joint Escrow Instructions) as provided in ANNEX IX attached
hereto (the "Use of Proceeds"). The Use of Proceeds provides, among other
things, that such net proceeds shall be used (i) first, for repayment of the
promissory notes identified in the Use of Proceeds (the "Specified Notes"); (ii)
then, to the application of the Security Deposit (as defined below); and (iii)
then, for general corporate purposes.
f. WARRANTS.
(i) The Company agrees to issue to the Buyer on the Closing
Date transferable warrants (each, a "Warrant" and, collectively, the "Warrants")
for the purchase of the number of shares of Common Stock equal to one hundred
percent (100%) of the Issue Date Conversion Shares. The Warrants will be issued
in two Certificates, designated as Series 2006-A and Series 2006-B,
respectively, as contemplated by Section 4(o)(iii) hereof. The Warrants shall
have an exercise price (the "Exercise Price") equal to the Closing Price for the
17
Trading Date immediately preceding the Closing Date; provided, however, that the
Exercise Price will be subject to adjustment as provided in the Warrant. The
Warrants shall be exercisable commencing on the Commencement Date specified in
the Warrants and shall expire at the close of business on the date which is the
last day of the calendar month in which the third annual anniversary of the
Effective Date occurs. The Warrant shall have cashless exercise rights as
provided in the Warrant. Except as specified above, each Warrant shall generally
be in the form annexed hereto as ANNEX V.
(ii) The Warrant Shares shall be subject to the provisions of
the Registration Rights Agreement.
g. CERTAIN AGREEMENTS.
(i) For purposes of this Agreement, the following terms shall
have meanings indicated:
(A) "New Transaction Period" means the period commencing on the Closing
Date and continuing through and including the Final Lock-up Date.
(B) "Final Lock-up Date" means the date on which the aggregate
principal amount of all outstanding Debentures is one-quarter or less
than the Aggregate Purchase Price.
(C) "New Transaction Price" means the Basic New Transaction Price (as
defined below) except that if the New Transaction Exercise Price is
lower than the Basic New Transaction Price, it means the New
Transaction Exercise Price.
(D) "Basic New Transaction Price" means, as may be applicable, on a per
share basis, the lower of (1) the lowest fixed purchase price of any
shares of the New Common Stock contemplated in the New Transaction, or
(2) the lowest conversion price or put or call price which would be
applicable under the terms of the New Transaction; in each such case,
whether such purchase or conversion price or put or call price is
stated or otherwise specified or is determined on the closing date of
the New Transaction by the application of a formula set in the
documents reflecting the New Transaction or could result from
adjustments or revisions contemplated in the relevant agreements for
the New Transaction and whenever such adjustment or revision would be
applicable (and if no minimum purchase price, conversion price or put
or call price, as the case may be, is set, it shall be assumed that
such minimum purchase price or conversion price is $.01); and provided,
further, that, if the securities issued in the New Transaction are
issued at a Face Value Discount (as defined below), the New Transaction
Price shall be adjusted to reflect such discount.(3)
---------------
(3) By way of illustration, if convertible preferred shares having a stated
value of $1 million and a fixed conversion price of $0.05 were sold for a
purchase price of $800,000, the effective New Transaction Price would be $0.04.
18
(E) "Exercise Threshold Price" means the then applicable Exercise
Price.
(F) "New Transaction Exercise Price" means the lowest exercise price
per share applicable to the warrants, option or similar instrument
(howsoever denominated; collectively, "New Transaction Warrants")
included in such New Transaction, whether such exercise price is stated
or could result from adjustments or revisions contemplated in the
relevant agreements for the New Transaction and whenever such exercise
price would be applicable (and, if no minimum exercise price is set, it
shall be assumed that such minimum exercise price is $.01).
(G) "New Transaction Effective Percentage" means the percentage equal
to the excess, if any, of (1) one hundred percent (100%) over (2) the
percentage equal to (x) the New Transaction Price, divided by (y) the
VWAP for the twenty (20) Trading Days ending on the Trading Day
immediately before the closing date of the New Transaction. (H)
"Alternative Warrant Percentage" means, with respect to the relevant
New Transaction, (1) the number of shares which are eligible to be
purchased under the New Transaction Warrants, divided by (2) the
aggregate of the shares of New Common Stock issued or issuable in such
transaction (excluding the shares issuable on exercise of the New
Transaction Warrants).
(I) "Current Warrant Percentage" means, as of immediately before the
consummation of the relevant New Transaction, the higher of (1) one
hundred percent (100%) or (2) the highest Alternative Warrant
Percentage of any preceding New Transaction.
(J) "Outstanding Warrant Shares" means, for the Warrants or for any
previously issued Additional Warrants (as defined below), the then
outstanding number of Warrant Shares which would then be issuable upon
the exercise in full of such Warrants (without regard to any
limitations which may then restrict the Holder's full exercise of such
Warrant at any time) or such Additional Warrants, if any, as in effect
immediately prior to the relevant New Transaction.
(K) "Original Warrant Shares" means, for the Warrants or for any
previously issued Additional Warrants, the original number of Warrant
Shares issuable on exercise of such Warrants on the Closing Date or as
Additional Warrants, as the case may be (in each case without regard to
any limitations which may then restrict the Holder's full exercise of
such Warrant at any time), but excluding any Warrant canceled pursuant
to the provisions of Section 4(o)(iii) hereof.
(L) "Face Value Discount" means consideration less than, as the case
may be, (x) the number of shares being issued multiplied by the stated
purchase price, (y) the stated principal amount of a debenture, note or
similar instrument or (z) the stated value of the shares of convertible
stock.
19
(ii) The Company covenants and agrees that, if, during the New
Transaction Period, without the prior written consent of a Majority in Interest
of the Holders in each instance (which consent is in the sole discretion of the
Holders and may be withheld for any reason or for no reason whatsoever), the
Company enters into a New Transaction, then
(A) the New Transaction Price shall be the Lowest Fixed Conversion
Price for all Unconverted Debentures; provided, however, if there was a
previous New Transaction Price, the Lowest Fixed Conversion Price shall
be the lowest New Transaction Price(4); and
(B) if the New Transaction Effective Percentage is higher than the then
applicable Effective Percentage, the Effective Percentage shall be
adjusted for all Unconverted Debentures to such New Transaction
Effective Percentage; and
(C) if the New Transaction Exercise Price of any of the New Transaction
Warrants is lower than the Exercise Threshold Price of the Warrants,
then the Exercise Price of the then outstanding Warrants shall be
adjusted to be equal to the New Transaction Exercise Price of such New
Transaction Warrants; and
(D) if the provisions applicable to the convertible preferred stock,
convertible debenture or similar instrument (howsoever denominated), if
any, of the New Transaction are more beneficial to the holder of such
instrument than the corresponding terms applicable to the Debentures or
in or to the Warrants, as the case may be, or if the terms which are
beneficial to the Company in the relevant Transaction Agreements are
not included in the corresponding instrument in the New Transaction,
then, unless waived by the Holder, the terms of the Transaction
Agreements applying to the then outstanding Debentures or the Warrants
or to the other Transaction Agreements, as the case may be, shall be
modified to reflect similar terms (based, if relevant, on the Closing
Date); provided, however, that nothing in this provision shall be read
to mean that the Purchased Securities shall be changed to any other
form of security;
(E) if either (1) the Conversion Price is adjusted and/or the Effective
Percentage is increased as contemplated by clause (A) and/or (B) above,
and/or (2) the Alternative Warrant Percentage is greater than the
Current Warrant Percentage (whether or not the Conversion Price or
Effective Percentage has been adjusted as a result of the New
Transaction), the Company shall issue to the Holder additional warrants
("Additional Warrants") for the purchase of the number of shares equal
to the excess, if any, of
(x) (I) the higher of (a) the Alternative Warrant Percentage
or (b) the Current Warrant Percentage, multiplied by (II) (a)
the Purchase Price, divided by (b) the Conversion Price as
determined on the Closing Date or on the closing date of the
----------------
(4) Any New Transaction Price shall be adjusted for subsequent events as
contemplated by the Debentures.
20
New Transaction, whichever is lower, multiplied by (III) a
fraction, of which the numerator is the Outstanding Warrant
Shares for all Warrants (including previously issued
Additional Warrants) and the denominator is Original Warrant
Shares for all Warrants (including previously issued
Additional Warrants); over
(y) the aggregate Outstanding Warrant Shares for all Warrants
(including previously issued Additional Warrants);
the terms of such Additional Warrants (including, but not limited, to
term of exercisability, exercise price, manner and limitations, if any,
on exercise, registration rights) shall be the same as the shall be the
same as the applicable New Transaction Warrants issued in such New
Transaction.
(iii) The Company covenants and agrees that, any of the
foregoing provisions of this Section 4(g) or any other provision of this
Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, without the prior written consent of a Majority in Interest of
the Holders in each instance (which consent is in the sole discretion of the
Holders and may be withheld for any reason or for no reason whatsoever),
(A) during the New Transaction Period, the Company will not enter into
any New Transaction where such transaction provides for a variable
conversion price or a variable exercise price;
(B) during the period commencing on the Closing Date and continuing
through the Effective Date, the Company will not enter into any New
Transaction whatsoever, and
(C) during the period commencing on the Effective Date and continuing
through the date which is the sixth monthly anniversary of the
Effective Date, the Company will not enter into any New Transaction
where such New Transaction provides for any registration rights
(including, but not limited to demand or piggy-back registration
rights) to any one or more of the New Investors in such New
Transaction.
The Company acknowledges that each of the foregoing provisions is independent of
the others and that a breach of any of the foregoing provisions might result in
adjustments referred to in other provisions of this Section 4(g) and, in
addition (and not in lieu of such adjustments, if any) shall constitute an event
of default under the Debenture and the other Transaction Agreements. The Company
is aware that if such event of default occurs, a Holder of a Debenture will have
certain redemption rights contemplated by the Debenture.
(iv) Nothing in the foregoing provisions reflects either an
obligation on the part of any Buyer to participate in any New Transaction or a
limitation on any Buyer from participating in any New Transaction.
21
(v) Any of the foregoing provisions of this Section 4(g) or
any other provision of this Agreement or any of the other Transaction Agreements
to the contrary notwithstanding, the Company shall not engage in any offers,
sales or other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Agreements.
(vi) The Company agrees that, prior to the Effective Date, the
Company will not file any registration statement for the sale of shares by the
Company or any other stockholder other than the Registration Statement
contemplated by the Registration Rights Agreement.
h. COMPANY PRINCIPAL'S AGREEMENTS.
(i) The Company hereby agrees that, no later than the Closing
Date, the Company will cause each of its principal officers and all of its
directors (each, a "Company Principal"), and certain Persons who are related to
or controlled by such Company Principal, to execute and deliver an agreement
(each, a "Company Principal's Agreement") regarding limitations on the sale or
other disposition of the shares of the Company's Common Stock (or instruments
convertible into or exercisable for such shares) held by such Company Principal
or other Principal (as defined in the Company Principal's Agreement), except
that, notwithstanding its terms, the Company Principal's Agreement will be
deemed not apply to the sale of shares of Common Stock bought by a Principal in
open market transactions. Subject to the foregoing, each Company Principal's
Agreement shall be substantially in the form set forth in ANNEX VII attached
hereto.
(ii) In addition, under certain circumstances as contemplated
by the definition of "New Transaction" in this Agreement, certain future
issuances by the Company to persons identified in clause (g) of such definition
are conditioned on such shares being subject to a Company Principal's Agreement
being executed by the relevant party (who, whether or not included in the
definition of Company Principal in the preceding subparagraph (i), shall, for
purposes of this Section 4(h), be deemed to be a "Company Principal" identified
in such definition). The Company covenants that it will obtain such executed
Company Principal's Agreement from the relevant party no later than the issuance
of the relevant security to such party and that it will promptly provide a copy
thereof to the Document Escrow Agent on behalf of the Buyer and the Other
Buyers.
i. AVAILABLE SHARES.
(i) The provisions of clause (ii) of this Section 4(i) shall
be applicable to fifty percent (50%) of (x) all of the then outstanding
Debentures and (y) all of the then outstanding Warrants until the amendment of
the Certificate of Incorporation to implement the Authorized Share Increase.
Thereafter, the provisions of clause (ii) of this Section 4(i) shall be
applicable to one hundred percent (100%) of all of the then outstanding
Debentures and all the then outstanding Warrants.
(ii) The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, a number of shares (the
"Reserved Amount") at least equal to one hundred twenty-five percent (125%) of
the sum of (x) the number of shares of Common Stock issuable as may be required,
at any time, to satisfy the conversion rights of the Holders of principal on all
22
(i) outstanding Convertible Debentures plus interest thereon through the
Maturity Date, plus (y) the number of shares issuable upon exercise of all
outstanding Warrants held by all Holders (in each case, whether any of such
outstanding Convertible Debentures or Warrants were originally issued to the
Holder, the Buyer or to any other party and without regard to any restrictions
which might limit any Holder's right to convert any of the Debentures or to
exercise any of the Warrants held by any Holder). The Reserved Amount shall be
determined on the first Trading Day after the end of each calendar quarter and
the number of shares to be reserved shall be based on (q) all outstanding
Convertible Debentures and the Conversion Price as of such date and (r)
unexercised Warrants as of such date. The Reserved Amount determined on such
date shall remain the Reserved Amount until the next quarterly determination.
j. 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 in the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included. In furtherance of the foregoing, the Company will
provide to the Buyer drafts of the applicable text the first filing of a Current
Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K (or
equivalent SB forms) 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) Trading Days before such filing will be made)
and will not include in such filing (or any other filing filed before then) any
statement or statements or other material to which the other party reasonably
objects, unless in the reasonable opinion of counsel to the party proposing such
statement, such statement is legally required to be included. 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
provisions of this Section 4(j), the Company will, after the Closing Date,
promptly issue a press release and file a Current Report on Form 8-K or, if
appropriate, a quarterly or annual report on the appropriate form, referring to
the transactions contemplated by the Transaction Agreements.
k. INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND RIGHTS. The
obligations of each Buyer under the Transaction Agreements are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any Other Buyer under any
one or more of the Transaction Agreements. The decision of each Buyer or Other
Buyer to purchase Purchased Securities pursuant to the Transaction Agreements
has been made by such Buyer independently of any Other Buyer and independently
of any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company or of its
subsidiaries, if any, which may been made or given by any Other Buyer or any of
their respective officers, directors, principals, employees, agents, counsel or
representatives (collectively, including the Buyer, the "Buyer
Representatives"). No Buyer Representative shall j.
have any liability to any Other Buyer or the Company relating to or arising from
any such information, materials, statements or opinions, if any. Each Buyer
acknowledges that no Other Buyer has acted as agent for such Buyer in connection
with making its investment hereunder and that no Buyer will be acting as agent
of such Other Buyer in connection with monitoring its investment in the
Purchased Securities or enforcing its rights under the Transaction Agreements.
Each Buyer 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 Agreements, and it shall not be necessary for any Other
Buyer to be joined as an additional party in any proceeding for such purpose.
The Company acknowledges that, for reasons of administrative convenience, (x)
the Transaction Agreements have been prepared by counsel for one of the Buyers
and such counsel does not represent all of the Buyers with respect to the
transactions contemplated hereby, and each other Buyer has retained its own
counsel (or had the opportunity to do so) with respect to such transactions, and
(y) the Company has elected to provide each of the Buyers with the same
Transaction Agreements for the purpose of closing a transaction with multiple
Buyers and not because it was required or requested to do so by any Buyer. In
furtherance of the foregoing, and not in limitation thereof, the Company
acknowledges that nothing contained in this Agreement or in any Transaction
Agreement, and no action taken by any Buyer pursuant thereto, shall be deemed to
constitute any two or more Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Agreements.
l. EQUAL TREATMENT OF BUYERS. 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 Agreements unless the same consideration
is also offered to all of the parties to the Transaction Agreements.
m. INDEPENDENT INVESTMENT DECISION. No Buyer has agreed to act
with any Other Buyer for the purpose of acquiring, holding, voting or disposing
of the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Buyer is acting independently with respect to its
investment in the Securities. The decision of each Buyer to purchase Purchased
Securities pursuant to this Agreement has been made by such Buyer independently
of any other purchase and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or its subsidiaries which may have made
or given by any Other Buyer or by any agent or employee of any Other Buyer, and
no Buyer or any of its agents or employees shall have any liability to any Other
Buyer (or any other person) relating to or arising from any such information,
materials, statements or opinions.
n. NASD RULE 2710. The Company is aware that the Corporate
Financing Rule 2710 ("NASD Rule 2710") of the National Association of Securities
Dealers ("NASD") is or may become applicable to the transactions contemplated by
the Transaction Agreements or to the sale by a Holder of any of the Securities.
If NASD Rule 2710 is so applicable, the Company shall, to the extent required by
such rule, cooperate with any broker or selling stockholder in respect of any
consents, authorizations or approvals that may be necessary for the NASD to
timely and expeditiously permit the stockholder to sell the securities.
23
o. AUTHORIZED SHARE INCREASE.
(i) The Company will take all commercially reasonable steps
necessary to effectuate the filing of an amendment to its Certificate of
Incorporation, as currently in effect, to reflect the Authorized Share Increase.
In furtherance of the foregoing, it will take all reasonable steps necessary to
have the stockholders meeting held and to obtain the requisite stockholder
approval, including, but not necessarily limited to, filing with the SEC and
distributing to the Company's stockholders a notice of and a proxy statement for
a stockholders meeting expected to be held by on April 18, 2006 (or as soon
thereafter as may be practicable), and the Board of Directors' recommending
approval of the Authorized Share Increase. Upon the requisite authorization for
the Authorize Share Increase, the Company will file an amendment to the
Certificate of Incorporation of the Company, as currently in effect, to reflect
the Authorized Share Increase, such filing to be made no later than April 28,
2006.
(ii) The Company agrees that on the Closing Date it will
deposit with American Stock Transfer & Trust Company (the "Security Agent"), out
of the Aggregate Purchase Price otherwise distributable to the Company out of
the Escrow Funds, an amount (the "Security Deposit") equal to fifty percent
(50%) of the Aggregate Purchase Price. The Company hereby grants the Buyer a
security interest in a portion of the Security Deposit equal to fifty percent
(50%) of the Buyer's Purchase Price to secure the Company's obligations to the
Buyer under this Section 4(o). The Security Deposit shall be held by the
Security Agent in an escrow account maintained by the Security Agent in the name
of the Company, but acting as agent for the Buyer and the Other Buyers. The
Security Agent's holding of the Security Deposit shall represent the holding of
such security interest in favor of the Buyer and the Other Buyers for the
Company's filing of an amendment to the Company's Certificate of Incorporation,
as currently in effect, to reflect the Authorized Share Increase by April 25,
2006. Evidence of such filing (the "Filing Evidence") shall be made by the
Company providing a letter from Company Counsel to the Document Escrow Agent
within three (3) Trading Days after the filing of the amendment, but in no event
later than April 28, 2006 (the "Filing Evidence Date") confirming (1) the
Authorized Share Increase was duly approved by the Company's stockholders on or
before April 25, 2006 and (2) confirming the filing of the amendment to the
Certificate of Incorporation, specifying the date of such filing and providing a
copy of the amendment which is either (x) an original or a photocopy of the
amendment certified or stamped by the office in the State of Incorporation in
which the amendment was filed or (y) a photocopy of the amendment as filed,
together with an unqualified confirmation from Company Counsel that such
amendment has been filed. If the Filing Evidence is timely received by the
Document Escrow Agent, (I) the Document Escrow Agent shall direct the Security
Agent to release the Security Deposit to the Company and to such other parties
as may be contemplated by the terms of the Joint Escrow Instruction, and (II)
the Document Escrow Agent will deliver the Certificates, as contemplated in
subparagraph (iii) below, to the respective Buyers. If the filing of the
Authorized Share Increase was not approved by April 25, 2006 or if the Filing
Evidence is not received by the Document Escrow Agent by the Filing Evidence
Date, the Company shall be obligated to pay to each Buyer on the Cancellation
Date (as defined below) an amount equal to fifty percent (50%) of such Buyer's
Purchase Price, plus accrued interest thereon (as contemplated by the
Debentures) through the Cancellation Date. In such event, the Document Escrow
Agent shall direct the Funds Escrow Agent to release the Security Deposit to the
Buyer and the Other Buyers, pro rata among (i) them in accordance with their
24
respective Purchase Prices. Such payment shall be made against cancellation, as
of the Cancellation Date, of (q) one of each Buyer's Debentures (representing
Debentures having a principal amount equal to fifty percent (50%) of each such
Buyer's Purchase Price) and (r) fifty percent (50%) of such Buyer's original
Warrants (each, in the manner contemplated by subparagraph (iii) below) and such
release shall be applied against the Company's obligations to the each relevant
Buyer under this Section 4(o). Interest, if any, earned on the Security Deposit
shall be paid to the Company (subject to the requirements of the Joint Escrow
Instructions), but the Company shall remain obligated to each Buyer for the
payment of accrued interest on the cancelled Debentures through the Cancellation
Date. The "Cancellation Date" is the earlier of (i) the first Trading Day after
the date, which shall not be before the conclusion of the Company's stockholders
meeting, on which the Company advises the Security Agent in writing that the
stockholders did not approve the Authorized Share Increase, or (ii) the Trading
Day after the Filing Evidence Date, if the Filing Evidence is not received by
the Document Escrow Agent the Filing Evidence Date.
(iii) In furtherance of the foregoing, the parties agree as
follows: The Debentures representing the Company's obligation to repay the
Purchase Price and the Warrants will each be initially issued in two
instruments, each for half of the amounts contemplated by this Agreement. One
such Debenture instrument and one such Warrant instrument will be released and
delivered to the Buyer on the Closing Date. The other Debenture instrument and
the other Warrant instrument will be released to the Buyer, but continue to be
held by the Document Escrow Agent, not in escrow, but on behalf of the Buyer
pending the release of the Security Deposit. If the Security Deposit is released
to the Company, such second Debenture instrument and second Warrant instrument
shall be delivered to the Buyer. If the Security Deposit is released to the
Buyers, such second Debenture instrument and second Warrant instrument shall be
delivered by the Document Escrow Agent to the Company for cancellation.
(iv) If, pursuant to the preceding provisions of this Section
4(o), the Buyer is entitled to the payment of the Buyer's pro rata share of the
Security Deposit, the Buyer must provide to the Funds Escrow Agent the
information contemplated by the form attached as ANNEX XII hereto. Such form may
be provided to the Document Escrow Agent for forwarding to the Funds Escrow
Agent if relevant. The Funds Escrow Agent will not disburse funds to a Buyer
without such information, and any directions given by the Document Escrow Agent
will not be effected until such information is provided.
p. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary, if any, to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
such subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
25
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 the Transfer Agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Debentures or
exercise of the Warrants or in connection with the issuance of Payment Shares,
as may be applicable from time to time, 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 the Buyer or its nominee and in
such denominations to be specified by the Holder in connection therewith. 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 other Transaction Agreements. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer 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 or upon request from a Holder while the Registration Statement is
effective, 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, the Warrant Shares or the Payment Shares, as may be
applicable, promptly instruct the Transfer Agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
b. (i) The Company understands that a delay in the delivery of
Conversion Certificates, whether on conversion of the Debenture and/or in
payment of accrued interest or on exercise of the Warrants, beyond the relevant
Delivery Date (as defined in the Debenture or Warrant, as the case may be) could
result in economic loss to the Holder. As compensation to the Holder for such
loss, the Company agrees to pay late payments to the Holder for late issuance of
the Conversion Certificates in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of Trading Days beyond two (2)
Trading Days after the Delivery Date):(5)
----------------
(5) Example: Notice of Conversion or Notice of Exercise is delivered on Monday,
May 1, 2006. The Delivery Date would be Thursday, May 4 (the third Trading Day
after such delivery). If the certificate is delivered by Monday, May 8 (2
Trading Days after the Delivery Date), no payment under this provision is due.
If the certificates are delivered on May 9, that is 1 "Trading Day Late" in the
table below; if delivered on May 16, that is 6 "Trading Days Late" in the table.
26
Late Payment For Each $10,000
of Principal or Interest Being Converted or
No. Business Days Late of Exercise Price of Warrant Being Exercised
---------------------------------------------------------------------------
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. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver the
Conversion Certificates to the Holder within a reasonable time. Furthermore, in
addition to any other remedies which may be available to a Holder, in the event
that the Company fails for any reason to effect delivery of such Conversion
Certificates within two (2) Trading Days after the Delivery Date, the Converting
Holder will be entitled to revoke the relevant Notice of Conversion or Notice of
Exercise by delivering a notice to such effect to the Company prior to the
Converting Holder's receipt of the relevant Conversion Certificates, whereupon
the Company and the Converting Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion or Notice
of Exercise, as the case may be; PROVIDED, HOWEVER, that any payments
contemplated by this Section 5(b) of this Agreement which have accrued through
the date of such revocation notice shall remain due and owing to the Converting
Holder notwithstanding such revocation.
(ii) If, by the tenth Trading Day after the relevant Delivery
Date, the Company fails for any reason to deliver the Conversion Certificates,
but at any time after the Delivery Date, the 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 contemplated in other provisions of the Transaction Agreements,
including, but not limited to, the provisions of the immediately preceding
Section 5(b)(i)), the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the number of Sold Shares multiplied
by the excess, if any, of (x) the Holder's total purchase price per share
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds per share (after brokerage commissions, if any) received by the
27
Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Holder in immediately available funds immediately upon
demand by the Converting Holder. By way of illustration and not in limitation of
the foregoing, if the 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 Holder
will be $1,000.
c. The provisions of this paragraph apply on or after the
Effective Date. After such Effective Date, the Company will issue Shares without
legend and without transfer restrictions on the books of the Transfer Agent,
and, at the request of the Holder, will use it best efforts to have previously
issued certificates representing the Shares re-issued without legend and without
transfer restrictions on the books of the Transfer Agent. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion of
the Debenture or exercise of a Warrant or at the request of the Holder with
respect to any Shares previously issued, provided the Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and the Holder's 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 the Transfer Agent to electronically transmit to the
Holder the Common Stock issuable upon conversion of the Debenture or exercise of
the Warrant or in replacement of any Shares previously issued by crediting the
account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
d. The Company shall assume any fees or charges of the
Transfer Agent or Company counsel regarding (i) the removal of a legend or stop
transfer instructions with respect to Registrable Securities, and (ii) the
issuance of certificates or DTC registration to or in the name of the Holder or
the Holder's designee or to a transferee as contemplated by an effective
Registration Statement. Notwithstanding the foregoing, it shall be the Holder's
responsibility to obtain all needed formal requirements (specifically: medallion
guarantee and prospectus delivery compliance) in connection with any electronic
issuance of shares of Common Stock.
e. The Holder of a Debenture or a Warrant shall be entitled to
exercise its conversion or exercise privilege with respect to the Debenture or
the Warrant, as the case may be, 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 exercise 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 Debenture or the exercise of the
Warrant. 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.
28
f. The Company will authorize the Transfer Agent to give
information relating to the Company directly to the Holder or the Holder's
representatives upon the request of the Buyer 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 the Holder in connection with a Notice of
Conversion or a Notice of Exercise, or (ii) the aggregate number of outstanding
shares of Common Stock of all stockholders (as a group and not individually) as
of a current or other specified date. At the request of the Holder, the Company
will provide the Holder with a copy of the authorization so given to the
Transfer Agent.
6. CLOSING DATE.
a. 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.
b. The closing of the purchase and issuance of the Purchased
Securities shall occur on the Closing Date at the offices of the Document Escrow
Agent.
c. Notwithstanding anything to the contrary contained herein,
on the Closing Date upon satisfaction of the conditions set forth in Sections 7
and 8 hereof and as provided in the Joint Escrow Instructions the Document
Escrow Agent will be authorized to (i) authorize the Funds Escrow Agent to
release the Escrow Funds to the Company and to others, as provided in the Joint
Escrow Instructions and the Use of Proceeds and (ii) as provided herein, release
to the Buyer the Certificates issued to the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Purchased Securities to the Buyer pursuant to this Agreement on the Closing
Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer
on or before the Closing Date;
b. Delivery by the Buyer to the Funds Escrow Agent by the
Closing Date of good funds as payment in full of an amount equal to the Purchase
Price in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
d. 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. a.
29
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Purchased Securities on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before the Closing Date;
b. The delivery by the Company to the Document Escrow Agent of
the Certificates in accordance with this Agreement (including the provisions of
Section 4(o)(iii) hereof);
c. The delivery by the Company to the Document Escrow Agent of
the executed Company Principal's Agreements from each Company Principal and the
related Principals (as defined in each Company Principal's Agreement) of such
Company Principal;
d. On such Closing Date, each of the Transaction Agreements
executed by the Company on or before such date shall be in full force and effect
and the Company shall not be in default thereunder;
e. 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;
f. The delivery to the Document Escrow Agent of an opinion of
counsel for the Company, dated such Closing Date, addressed to the Buyer and the
Other Buyers, in form, scope and substance reasonably satisfactory to the Buyer,
substantially to the effect set forth in ANNEX III attached hereto;
g. 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
h. 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.
9. INDEMNIFICATION AND REIMBURSEMENT.
a. (i) The Company agrees to indemnify and hold harmless the
Buyer and its officers, directors, employees, and agents, and each Buyer Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, "Damages"), joint or several, and any action in respect
30
thereof to which the Buyer, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Buyer 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 Buyer's
failure to perform any covenant or agreement contained in this Agreement or the
Buyer's or its officer's, director's, employee's, agent's or Buyer Control
Person's illegal or willful misconduct, gross negligence, recklessness or bad
faith (in each case, as determined by a non-appealable judgment to such effect)
in performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Buyer,
other than by reason of its gross negligence or willful misconduct (in each
case, as determined by a non-appealable judgment to such effect), (x) 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, or if the Buyer is impleaded in any such action,
proceeding or investigation by any Person, or (y) 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, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless the Buyer from and against and in respect of all losses, claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
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 the
Buyer who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Buyer Control Persons (if any), as
the case may be, of the Buyer 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 Buyer, any such Affiliate and any such
Person. The Company also agrees that neither the Buyer nor any such Affiliate,
partner, director, agent, employee or Buyer 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, except as may be expressly and
specifically provided in or contemplated by this Agreement.
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section 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
(an "Indemnified Party") might seek indemnity under paragraph (a) of this
Section 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,
31
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
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 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.
(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 paragraph (b) of this Section, 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 paragraph (a) of this Section).
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 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 paragraph (a) of this
Section with respect to such Third Party Claim.
32
(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 paragraph (b) of this Section, or if
the Indemnifying Party gives such notice but fails to prosecute
vigorously and diligently or settle the Third Party Claim, each in a
reasonable manner, 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 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 paragraph
(a) of this Section 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 paragraph (a) of this Section 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 (y) negotiate a resolution of such dispute; provided, however,
33
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 paragraph (a) of this Section 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 paragraph (a) of this
Section 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
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 paragraph (a) of this Section 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.
c. 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 the Buyer 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. SPECIFIC PERFORMANCE. The Company and the Buyer
acknowledge and agree that irreparable damage would occur in the event that any
provision of this Agreement or any of the other Transaction Agreements were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties (including any Holder) shall be entitled
to an injunction or injunctions, without (except as specified below) the
necessity to post a bond, to prevent or cure breaches of the provisions of this
Agreement or such other Transaction Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity; provided, however
that the Company, upon receipt of a Notice of Conversion or a Notice of
Exercise, may not fail or refuse to deliver the stock certificates and the
related legal opinions, if any, based on any claim that the Holder has violated
any provision hereof or for any other reason, unless the Company has first
posted a bond for one hundred fifty percent (150%) of the principal amount and
then obtained a court order specifically directing it not to deliver said stock
34
certificates to the Holder (individually or all Holders or Holders of a
particular classification including the Holder, as may be more fully set forth
in such court order). This provision is deemed incorporated by reference into
each of the Transaction Agreements as if set forth therein in full.
12. GOVERNING LAW: MISCELLANEOUS.
a. 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
County of New York or the state courts of the State of New York sitting in the
County 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 or
to any claim that such venue of the suit, action or proceeding is improper. To
the extent determined by such court, the Company shall reimburse the Buyer for
any reasonable legal fees and disbursements incurred by the Buyer in enforcement
of or protection of any of its rights under any of the Transaction Agreements.
Nothing in this Section shall affect or limit any right to serve process in any
other manner permitted by law.
b. 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.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. 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.
35
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
k. All dollar amounts referred to or contemplated by this
Agreement or any other Transaction Agreement shall be deemed to refer to US
Dollars, unless otherwise explicitly stated to the contrary.
13. 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 fifth Trading Day after deposit, postage prepaid, in
the United States Postal Service by registered or certified
mail, or
(c) the third Trading 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: At the address set forth at the head of this Agreement.
Attn: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, P.C.
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
900 Three Galleria Tower
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
36
BUYER: At the address set forth at the head of this Agreement.
with a copy to:
▇▇▇▇▇▇▇ & Prager LLP, Esqs.
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
DOCUMENT
ESCROW AGENT: ▇▇▇▇▇▇▇ & Prager LLP, Esqs.
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Buyer'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 three (3) years after the
Closing Date and shall inure to the benefit of the Buyer and the Company and
their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
37
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, with respect to the Purchase Price
specified below, each the undersigned represents that the foregoing statements
made by it above are true and correct and that it has caused this Agreement to
be duly executed on its behalf (if an entity, by one of its officers thereunto
duly authorized) as of the date first above written.
PURCHASE PRICE:
BUYER:
------
Printed Name of Buyer:
Address By:
(Signature of Authorized Person)
Telecopier No.
Printed Name and Title
Jurisdiction of Incorporation or
Organization
IF THE ABOVE NOTICE ADDRESS IS NOT THE RESIDENCE (FOR INDIVIDUAL BUYER) OR
PRINCIPAL PLACE OF BUSINESS (FOR BUYER WHICH IS NOT AN INDIVIDUAL), such
Residence or Principal Place of Business is:
COMPANY: RIM SEMICONDUCTOR COMPANY
Title:
By:
38
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT DOCUMENT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V FORM OF WARRANT
ANNEX VI COMPANY'S SEC DOCUMENTS AVAILABLE ON ▇▇▇▇▇
ANNEX VII COMPANY PRINCIPAL'S AGREEMENT
ANNEX VIII SECURITY INTEREST AGREEMENT
ANNEX IX USE OF PROCEEDS
ANNEX X COMPANY DISCLOSURE
ANNEX XI PURCHASE PRICE WIRE INSTRUCTIONS
ANNEX XII BUYER'S INFORMATION FORM FOR FUNDS ESCROW AGENT
39