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SUBSCRIPTION AGREEMENT
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EXHIBIT 10.24
SUBSCRIPTION AGREEMENT
______, 2000
Ambient Corporation
Ladies and Gentlemen:
1 The undersigned hereby tenders this subscription and applies for the
purchase of the principal amount of 10% Convertible Debentures, each in the form
attached hereto as Appendix I (hereinafter, the "Debentures") of Ambient
Corporation (the "Company") set forth on the signature page of this agreement.
Together with this Subscription Agreement, the undersigned is delivering
to the Company the full amount of the purchase price for the Debentures which
the undersigned is subscribing for pursuant hereto by wire transfer as
instructed by the Company.
2. Conversion. Immediately following (and subject) to the approval by the
Company's stockholders, at the annual 2000 stockholders meeting (the "Annual
2000 Meeting"), of a proposal to increase the authorized shares of Common Stock,
par value, $0.001 (hereinafter, the "Common Stock") that the Company is
authorized to issue from time to time (such proposal hereafter referred to as
the "Increase in Authorized Common"), the principal amount of the outstanding
Debentures shall, without any further action, convert into shares of Common
Stock of the Company at a conversion rate per share equal to $2 (hereinafter,
the "Conversion Shares"). Additionally, at time of the issuance of the
Conversion Shares, the Company shall issue to the undersigned a warrant, in the
form annexed hereto as Appendix II, (hereinafter, the "Warrant") to purchase up
to such number of shares as shall be equal to the number of Conversion Shares
issued at the time of the Conversion at a per share exercise price equal to
$3.50 (the shares of Common Stock issuable or issued under such Warrant being
referred to hereafter as the "Warrant Shares"). The Company represents that the
Annual 2000 Meeting is currently scheduled for September 20, 2000 and undertakes
and covenants to hold the Annual 2000 Meeting by no later than November 15, 2000
and also undertakes and covenants to use its best efforts to cause to be adopted
at such meeting the proposal relating to the Increase in Authorized Common.
The Company may, at any time commencing after the end of the twelve month
period following the issuance of the Warrant and upon delivery of a notice of
redemption to the holder hereof (hereafter, the "Notice of Redemption") redeem
(to the extent not then exercised) the Warrant for $.10 per Warrant share if the
underlying common stock issuable upon exercise of the Warrant is covered by an
effective registration statement on Form SB-2 (or any other appropriate form)
under the Securities Act of 1933, as amended (hereinafter, the "Act"), and the
Company's common shares have traded at or above 200% of the exercise price for a
period of twenty consecutive trading days immediately preceding the date on
which the Notice of Redemption is deposited or transmitted; provided, that, the
provisions relating to such redemption shall apply
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only upon (and following) the approval by the Company's stockholders at the
Annual 2000 Meeting of the Increase in Authorized Common and, provided, further,
that, notwithstanding the foregoing, the Holder may exercise within seven (7)
business days following delivery to the Holder of the Notice of Redemption the
Warrant (in part or in full) by payment in immediately available funds of the
amount reflecting such exercise of the Warrant.
3. Registration Rights (i) Within 135 days following the date on which the
Company's stockholders approve the proposal relating to the Increase in
Authorized Common (such date being hereinafter referred to as the "Conversion
Date"), the Company will include in a registration statement (the "Registration
Statement") which the Company will prepare and file with the SEC under the Act
the Conversion Shares and the Warrant Shares (collectively, such Conversion
Shares and Warrant Shares being referred to herein collectively as the
"Securities"). The undersigned shall pay any and all underwriting commissions,
if any, in connection with the re-sale by the undersigned of the Securities, but
the Company shall bear all fees and expenses attendant to registering the
Securities under federal, state and any other securities laws, and any required
filings with the NASD, including, without limitation, all printing costs.
(ii) The Company shall use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. The Company shall keep effective and
current any registration or qualification contemplated by this Agreement and
shall from time to time amend or supplement each applicable registration
statement, preliminary prospectus, final prospectus, application, document, and
communication in order to maintain the Registration Statement effective and
current for so long as the Securities are not transferable under Rule 144(k)
under the Act.
(iii) The Company shall use its best efforts to cause the Securities to be
registered or qualified for sale under the securities or blue sky laws of such
jurisdictions as the Holder(s) may reasonably request; provided, however, that
the Company shall not by reason of this Article be required to qualify to do
business in any state in which it is not otherwise required to qualify to do
business or to file a general consent to service of process in such
jurisdiction.
(iv) Upon request, the Company shall furnish each Holder and its counsel
copies of all registration statements and amendments and supplements thereto,
each preliminary and final prospectus and amendment and supplement thereto,
comment letters from the Commission, the National Association of Securities
Dealers ("NASD") and state securities commissions, and such other documents as
any Holder shall reasonably request to facilitate the disposition of the
Securities included in such registration.
(v) The Company will indemnify and hold harmless each Holder, and each
partner, officer, director, and controlling person of such Holder, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement against all claims, losses, damages and liabilities (or actions
in respect thereof under the Act, the Exchange Act, common law or otherwise
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like as
amended and supplemented) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not
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misleading, or any violation by the Company of any rule or regulation
promulgated under the Act or any state securities or blue sky laws applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
promptly reimburse each such Holder, and each partner, officer, director, and
each controlling person of such Holder, for any legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, that the Company will not be
liable to any Holder or any partner, officer, director and controlling person of
any Holder, to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission contained
in information furnished to the Company by any Holder in writing for use
therein.
(vi) In connection with any registration statement in which a holder of
Securities is participating, each such holder shall furnish to the Company in
writing such information and affidavits as the Company and any underwriter
reasonably requests for use in connection with any such registration statement
or prospectus and shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder.
(vii) Each Holder will indemnify and hold harmless each other Holder (the
"Indemnitee"), and each partner, officer, director, and controlling person of
such Indemnitee against all claims, losses, damages and liabilities (or actions
in respect thereof under the Act, the Exchange Act, common law or otherwise)
arising out of or based on any untrue statement or omission contained in
information furnished by such Holder in writing specifically for use by the
Company in connection with this offering and relied on by the Company and the
Indemnitee; provided, however, that the indemnification set forth in this
subparagraph (vii)) shall be limited to the amount, with respect to each Holder,
equal to the gross proceeds realized by such Holder from the sale of such
securities registered pursuant to such registration statement.
(viii) If the indemnification provided for in subparagraphs (vi) and (vii)
above is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such of loss, liability, claim, damage,
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of competent jurisdiction by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the party's relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission. Notwithstanding the provisions
of this subparagraph (viii), a Holder shall not be required to
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contribute any amounts in excess of the amount equal to the gross proceeds
realized by such Holder from the sale of the securities registered pursuant to
such registration statement.
(ix) With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
(as that term is used in Rule 144 under the Act) to the public without
registration, the Company undertakes to use its best efforts to:
(A) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act;
(B) file with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act at any time
after it has become subject to such reporting requirements; and
(C) so long as a Holder owns any restricted Securities, furnish to the
Holder promptly upon a written request by the Holder as to the Company's
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety days following the effective date of the first registration
statement filed by the Company for an offering of Securities to the general
public), and of the Act and The Exchange Act of 1934, as amended, a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents so filed as the Holder may reasonably request in availing himself,
herself or itself of any rule or regulation of the Commission allowing the
Holder to sell any such Securities without registration.
(x) Notwithstanding the forgoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Holders in writing of the existence of a Potential Material Event,
the holders shall not offer or sell any Securities, or engage in any other
transaction involving or relating to the Securities, from the time of the giving
of notice with respect to a Potential Material Event until either the events or
circumstances comprising such Potential Material Event have been disclosed to
the public or no longer constitute a Potential Material Event; provided however,
that the Company may not so suspend the right to such holders of Securities
during the periods the Registration Statement is required to be in effect other
than during a Permitted Suspension Period. The term "Permitted Suspension
Period" means one or more suspension periods during any consecutive 12-month
period which suspension periods, in the aggregate, do not exceed fifty (50)
days, provided, however, that no one such suspension period shall either (i) be
for more than twenty (20) days or (ii) begin less than ten (10) business days
after the last day of the preceding suspension (whether or not such last day was
during or after a Permitted Suspension Period) and the term "Potential Material
Event" shall mean any of the following: (i) the possession by the Company of
material information not ripe for disclosure in a registration statement, which
shall be evidenced by determinations in good faith by the Board of Directors of
the Company that disclosure of such information in the registration statement
would be detrimental to the business and affairs of the Company; or (ii) any
material engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination. Notwithstanding anything to the
contrary contained herein, the provisions hereof shall not apply to the extent
that any of the Securities then included in such
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Registration Statement may be sold or otherwise transferred under Rule 144 under
the Act or are transferred in a private non-brokerage transaction.
(xi) In the event that the Registration Statement is not declared
effective within the earlier of (A) 135 days following the Conversion Date or
(B) 10 business days following receipt of notice by the SEC that the
Registration Statement may be declared effective, then the Company shall issue
to the undersigned, in respect of each 30 day period (pro-rated for any period
less than 30 days) following such date and continuing until such time as the
Registration Statement shall have been declared effective, such number of shares
of Common Stock as shall be equal to five percent (5%) of the number of
Conversion Shares Issued at the Conversion (the "Additional Shares"), provided,
that, notwithstanding anything to the contrary contained in the foregoing, the
Company shall have no obligation to issue any Additional Shares in excess of
such number of Additional Shares as shall be equal to, in the aggregate, 15% of
the number of Shares purchased hereunder.
4. Representations and Warranties of the Undersigned. In order to induce the
Company to accept this subscription, the undersigned hereby represents and
warrants to, and covenants with, the Company as follows:
(i) The undersigned has received and reviewed the registration
statement on Form SB-2 as of the date hereof prepared by the Company and filed
with the Securities and Exchange Commission (the "SEC") on August 4, 2000, (with
such amendments and revisions as the Company shall deem necessary or desirable)
(hereinafter, the "Offering Materials"), and except for the Offering Materials
and the representations contained herein, the undersigned has not relied upon
any other materials or literature relating to the offer and sale of the
Securities;
(ii) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the Company and the
offering, and all such questions, if any, have been answered to the full
satisfaction of the undersigned;
(iii) The undersigned has such knowledge and expertise in financial
and business matters that the undersigned is capable of evaluating the merits
and risks involved in an investment in the Securities
(iv) The information provided by the investor in this Subscription
Agreement being delivered by the undersigned to the Company herewith is true,
complete and correct in all material respects, and the undersigned understands
that the Company has determined that the exemption from the registration
provisions of the Act, which is based upon non-public offerings is applicable to
the offer and sale of the Securities, based, in part, upon the representations,
warranties and agreements made by the undersigned herein ;
(v) Except as set forth in the Offering Materials or herein, no
representations or warranties have been made to the undersigned by the Company
or by any agent, employee, or affiliate of the Company, and in entering into
this transaction the undersigned is not relying upon any information, other than
the results of independent investigation by the undersigned and the
representations contained herein and in the Offering Materials;
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(vi) The undersigned understands that: (A) the Debentures,
Conversion Shares, the Warrant and the Warrant Shares (collectively, the
"Purchased Securities") have not been registered under the Act or the securities
laws of any state, and are being offered by the Company based upon an exemption
from such registration requirements for non-public offerings pursuant to
Regulation D under the Act; (B) the Purchased Securities are and will be
"restricted securities", as said term is defined in Rule 144 of the Rules and
Regulations promulgated under the Act; (C) the Purchased Securities may not be
sold or otherwise transferred unless they have been first registered under the
Act and all applicable state securities laws, or unless an exemption from such
registration provisions is available with respect to said resale or transfer;
(D) other than as set forth herein, the Company is under no obligation to
register the Purchased Securities under the Act or any state securities laws, or
to take any action to make any exemption from any such registration provisions
available; (E) the certificates for the Purchased Securities will bear a legend
to the effect that the transfer of the securities represented thereby is subject
to the provisions hereof; and (F) stop transfer instructions will be placed with
the Company's transfer agent, if any, for the Purchased Securities.
(vii) The undersigned is acquiring the Purchased Securities solely
for the account of the undersigned, for investment purposes only, and not with a
view towards their public distribution in violation of any applicable law.
(viii) The undersigned will not sell or otherwise transfer any of
the Purchased Securities unless and until: (A) said securities, shall have first
been registered under the Act and all applicable state securities laws; or (B)
the undersigned shall have first delivered to the Company a written opinion of
counsel (which counsel and opinion (in form and substance) shall be reasonably
satisfactory to the Company), to the effect that the proposed sale or transfer
is exempt from the registration provisions of the Act and all applicable state
securities laws;
(ix) The undersigned has full power and authority to execute and
deliver this Subscription Agreement and to perform its obligations hereunder,
and this Subscription Agreement is a legally binding obligation of the
undersigned in accordance with its terms;
(x) The undersigned meets the requirements of at least one of the
suitability standards for an "accredited investor," as such term is defined in
Regulation D of the Rules and Regulations promulgated under the Act and as set
forth in this Subscription Agreement;
(xi) The undersigned has carefully reviewed the Risk Factors listed
below associated with an investment in the Purchased Securities and understands
that an investment in such securities offered hereby is highly speculative and
involves a high degree of risk and should not be purchased by anyone who cannot
afford the loss of his entire investment;
5. Representations and Warranties of the Company. In order to induce the
undersigned to make this subscription, the Company hereby represents and
warrants to, and covenants with, the undersigned as follows:
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(i) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted. The Company and each of its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its business or properties.
(ii) The Company's authorized capital and its outstanding shares of
stock are as set forth in the Offering Materials.
(iii) All corporate action on the part of the Company necessary for
the authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder and the authorization, issuance and
delivery of the Shares, the Warrant and the Warrant Shares has been taken or
will be taken prior to the closing of the subscription hereunder (except with
respect to the Increase in Authorized Common which will be taken at the Annual
2000 Meeting), and this Agreement, upon due execution and delivery, constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
(iv) The Purchased Securities, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable, and the undersigned shall
have good and marketable title to such securities, free and clear of any liens,
pledges, encumbrances, taxes, charges or restrictions of any kind (other than
those created by or through the undersigned).
(v) The Company is not in violation of, or default under, any
provisions of its Certificate of Incorporation or Bylaws, both as currently in
effect. The Company is in compliance in all material respects with all
judgments, decrees and governmental orders and, to the best of its knowledge,
with all applicable laws, rules, regulations, except for such non-compliance
that would not have a material adverse effect on the properties, financial
condition, operations, prospects or business of the Company.
(vi) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated thereby do not
and will not conflict with or constitute a breach or a default under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture, patent or instrument to which the Company or any of
its subsidiaries is a party or by which any property or asset of the Company or
any subsidiary is bound or affected which, individually or in the aggregate
would be reasonably expect to have a material adverse effect.
(vii) There is no action, suit, proceeding or investigation pending
or currently threatened against the Company which questions the validity of this
Agreement or the consummation of the transactions contemplated hereby
(including, without limitation, under the Warrant) or which
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might result, either individually or in the aggregate, in any material adverse
effects on the assets, financial condition, operations or business of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
(viii) The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the U.S.
Securities and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act (the foregoing materials and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being collectively referred to herein as the
"SEC Documents"). As of their respective dates, and none of the SEC Documents,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, , in light of the circumstances under which they
were made, not misleading provided, that, notwithstanding the foregoing, the
Company amended its financial statements and balance sheet for the three month
period ended March 31, 2000, whereby there was reflected an increase in the
Company's loss of an amount approximating $10,000,000 (such amendment being the
"Q1 Amendment") and anticipates amending its filed annual report on From
10-KSB-A for the year ended December 31, 1999, to reflect these post balance
sheet events (such year-end supplement being the "1999 Year-End Supplement").
Except for the Q1 Amendment and the Year-End Supplement, since the filing of the
Company's most recent form Annual Report on Form 10KSB40, there has been no
material adverse change and no material adverse development in the business,
properties, operations or prospects, financial condition, liabilities or results
of operations of the Company or its subsidiaries.
6. Press Release. Neither the Company nor the undersigned shall issue a
press release or other public announcement relating to this agreement or the
subject matter hereof without the prior approval of the other.
7. Investment Company. The Company is not an investment company under the
Investment Company Act of 1940 and the rules and regulations of the SEC
thereunder.
RISK FACTORS
This offering involves a high degree of risk. The undersigned (sometimes
referred to as "you") should be able to bear a complete loss of its investment.
The undersigned should carefully consider the risks described below and the
other information in this prospectus before deciding to invest in shares of the
Company (the Company is sometimes referred to as "we"). If any of the following
risks actually occur, our business, financial condition and results of
operations would likely suffer. In such case, the market price of our capital
stock could decline, and you may lose all or a part of the money you pay to buy
our stock.
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We will require additional financing to continue operating.
The Company's capital requirements in connection with its development and
marketing activities have been and will continue to be significant. The Company
has been dependent upon the proceeds of sales of its securities to investors to
fund its development and marketing activities and as of March 31, 2000, we had
an accumulated deficit of approximately 19.0 million including $12.8 million in
non-cash charges primarily related to the issuance of warrants and the
extinguishments of debt. The Company is not generating revenues from its
operations to fund its activities and is, therefore, is dependent on the
proceeds of this Offering to continue the development of its technology and the
marketing of its products. In the event that the proceeds of this Offering and
cash flow prove to be insufficient to fund operations (due to a change in the
Company's plans or a change, or an inaccuracy, in its assumptions or as a result
of unanticipated expenses, technical difficulties or otherwise), the Company
would be required to seek additional financing sooner than currently
anticipated. There can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all. The
Company has no current arrangements with respect to, or sources of, additional
financing. The inability to obtain additional financing when needed would have a
material adverse effect on the Company, including, possibly, requiring the
Company to curtail or cease its operations. Accordingly, there is substantial
doubt as to the Company's ability to repay the Notes on their maturity date. To
the extent that any future financing involves the sale of the Company's equity
securities, the holdings of the Company's then existing stockholders could be
substantially diluted.
We have lost money in every quarter and year, and we expect these losses to
continue in the foreseeable future.
Since we began our operations in 1996, we have lost money in every quarter
and year. As of March 31, 2000, we had an accumulated deficit of approximately
19.0 million including $12.8 million in non-cash charges primarily related to
the issuance of warrants and the extinguishments of debt. We may not be able to
generate sufficient revenue to become profitable. Even if we do become
profitable, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.
"Going concern" statement in auditor's report may make it difficult to raise new
capital.
We are a development stage company and we have not had any revenues to
date. As of March 31, 2000, we had an accumulated deficit of approximately 19.0
million including $12.8 million in non-cash charges primarily related to the
issuance of warrants and the extinguishments of debt from June, 1996 (date of
inception). The report of the independent auditors on our financial statements
for the year ended December 31, 1999 includes an explanatory paragraph relating
to the uncertainty of our ability to continue as a going concern, which may make
it more difficult for us to raise additional capital.
We have only been in business for a short period of time, so your basis for
evaluating us is limited.
We are a development stage company with a limited history of operations.
As a result, there is a limited history of operations for evaluating our
business. You must consider the risks and difficulties frequently encountered by
early stage companies in new and rapidly evolving
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markets, including the market for the provision of rapid power-line
telecommunication services in which our 90.01% owned subsidiary, PLT Solutions,
Inc. is engaged and Internet and e-commerce access via screen phones in which
our minority-owned subsidiary Kliks is engaged. Some of these risks and
uncertainties relate to our ability to:
o in the case of PLT, ensure that the insulated packaging of our
proprietary coupler pass the high voltage tests, necessitating
additional designing efforts and thereby increasing costs;
o in the case of PLT, establish and maintain relationships with
leading with a modem and media access control processor chip
manufacturer and a data network equipment manufacturer, and
collaborate with a utility company;
o in the case of PLT, verify that at least one modem technology
available from suppliers is suitable for high speed data
transmission over medium voltage power lines;
o in the case of PLT, successfully complete a pilot project, thereby
establishing product feasibility in a realistic operating
environment;
o in the case of Kliks, failure to successfully execute an
implementation program with the Israeli national company;
o respond effectively to actions taken by our competitors;
o build our organizational and technical infrastructures to manage our
growth effectively;
o design, develop and implement effective products for existing
clients and new clients; and
o attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
The market for our products is unproven.
The market for rapid power-line data telecommunication, in the case of
PLT, and Internet access and e-commerce browsing via screen phones, in the case
of Kliks, is unproven. For us to be successful in entering power-line data
telecommunications services industry, network equipment manufacturers and media
access control processor chip manufacturers, as well as users, must accept the
concept of power-line data telecommunication generally and also adopt the
solution that we have developed. There can be no assurance that utilization of
electrical power grids as a medium of rapid data transmission will be
commercially accepted. For example, utilities may react negatively to the
attachment of our coupler to the power grids. In certain countries, such as
Japan, there may be regulations restricting the transmission of high frequency
over power-lines, necessitating governmental permission, which may be denied or
delayed. Moreover, the high frequency electrical characteristics of the power
grid in some countries or localities may prevent the efficient transmission of
high frequency signals, and thus not permit the implementation of our solution.
Also, the neighborhood grid may be so large or
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complicated that the network operation may only be able to provide greatly
reduced data speeds. Further, in the case of PLT, our solution may not achieve
or sustain market acceptance under emerging industry standards or may not meet,
or continue to meet, the changing demands of the [media access and network
equipment manufacturers. If the market for power-line based rapid transmission
of data (in the case of PLT) or Internet access and e-mail browsing via screen
phones (in the case of Kliks) fails to develop or develops more slowly than
expected, or if either of our PLTs' or Klik's solution does not achieve or
sustain market acceptance, our business, financial condition and results of
operations would be materially adversely affected.
You should not rely on our quarterly or year-end operating results as an
indication of how we will do in the future.
Our quarterly and year-end operating results may vary significantly in the
foreseeable future due to a number of factors that could affect our performance,
expenses or prospects during any particular quarter. These factors include:
o the demand for power-line based rapid telecommunication data
transmission and for screen phones;
o the degree of acceptance of our power-line telecommunication
solution by network equipment and media access equipment
manufacturers and screen phones by consumers;
o the regulatory climate in certain countries or localities relating
to the use of power-line based rapid data transmission and screen
phones
o changes in our operating expenses;
o the development of our direct and indirect distribution channels;
o changes in fees paid for our services resulting from competition or
other factors;
o economic conditions specific to the telecommunications, Internet
access and e-commerce industries;
Due to all of the foregoing factors, and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our operating results will be below the expectations of public
market analysts and investors. In this event, the price of our common stock
would likely fall.
In the event that the prospective customers of our proposed technologies
were to determine that the benefits of using our technology did not justify the
cost of licensing the technology, demand for our technology would decline. Any
factor that results in a decline in demand for our copy protection technology
would have a material adverse effect on our business, financial condition and
result of operations.
12
There are many competitors in the power-line data telecommunications and
Internet access industries and we may not be able to compete effectively against
them.
The high frequency rapid data transmission industry and the Internet
access and e-commerce browsing industry are extremely competitive. Our primary
competitors include companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours. There can be no assurance that we will be able to compete successfully in
this market. In particular, in the case of PLT, certain companies, such as Media
Fusion, claim to provide high frequency rapid data transmission. This alternate
high frequency rapid transmission currently available may prove to be more
successful than PLT's solution. There can be no assurance that other companies
will not enter the market in the future. There can be no assurance that we will
be able to continue developing products with innovative features and functions,
or that development by others of similar or more effective products will not
render our products or technologies noncompetitive or obsolete.
New Products and Rapid Technological Change.
The market for our proposed products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
Our success will depend in part on our ability to enhance our planned
technologies and products and to introduce new products and technologies to meet
changing customer requirements and evolving industry standards. We currently
devote, and intend to continue to devote, substantial resources toward the
development of high frequency rapid power-line based data transmission and
Internet access and e-commerce browsing via screen-phones. There can be no
assurance that we will successfully complete the development of these
technologies and related products in a timely fashion or that our current or
future products, if any, will satisfy the needs of the market. There can also be
no assurance that products and technologies developed by others will adversely
affect our competitive position or render our products or technologies
non-competitive or obsolete. See "Competition."
We have limited marketing experience and capabilities.
We have limited marketing experience and limited financial, personnel and
other resources to undertake marketing and advertising activities. To date we
have generated no revenues. Demand for our proposed products will depend
principally upon competitive pricing, data rate and system reliability, in the
case of high speed power-line transmission, data rate and system reliability. As
is typically the case with newly-introduced products, the ultimate level of
demand for our products is subject to a high degree of uncertainty. Developing
market acceptance for our existing and proposed product will require substantial
marketing efforts and the expenditure of a significant amount of funds to inform
network equipment manufacturers of the perceived advantages of our products.
There can be no assurance that our marketing efforts will result in demand for,
or market acceptance of, our proposed products. There can be no assurance that
we will be able to market these products successfully or that our efforts will
result in any significant revenues. We may seek a strategic alliance with a
partner with an international marketing capability. We are not currently engaged
in negotiations with any potential strategic partner and there can be no
assurance that we will be able to identify a suitable partner or that, if so, we
will be able to sign an agreement on acceptable terms.
13
We have very few employees and are particularly dependent on Dr. Yehuda Cern.
We have a small number of employees. Although we believe we maintain a
core group sufficient for us to effectively conduct our operations, the loss of
certain of our key personnel could, to varying degrees, have an adverse effect
on our operations and product development. The loss of Dr. Yehuda Cern, the
Chief Technology Officer for Insulated Connection Corporation, Ltd., our
wholly-owned Israeli subsidiary ("ICC"), would have a material adverse affect.
We have not obtained "key-man" life insurance on the life of Dr. Cern. Many of
our key employees and corporate officers reside in Israel.
We are subject to risks associated with international operations.
We conduct business from our facilities in Israel. Our international
operations and activities subject us to a number of risks, including the risk of
political and economic instability, difficulty in managing foreign operations,
potentially adverse taxes, higher expenses and difficulty in collection of
account receivable. In addition, a substantial portion of our payroll is paid in
the currency of Israel, where most of our employees reside and our research and
development operations are located. Because our financial results are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies that we use to make payments in relation to the U.S. dollar.
We do not cover known or anticipated operating exposures through foreign
currency exchange option or forward contracts.
We are subject to risks associated with operations in Israel.
Our affiliates, other than PLT Solutions Inc., maintain offices and
research and development facilities in Israel and are directly affected by
prevailing economic, military and political conditions that affect Israel.
We need to establish and maintain licensing relationships with companies in
related fields.
Our future success will depend in part upon our ability to establish and
maintain relationships with spread spectrum modem and MAC processor
manufacturers and network integrators, in the case of power-line
telecommunications and CPS Europe Ltd., in the case of screen phones. We believe
that these current and future relationships can allow us greater access to
manufacturing, sales and distribution resources. However, the amount and timing
of resources to be devoted to these activities by these other companies are not
within our control. We may not be able to maintain our existing relationships or
enter into beneficial relationships in the future. Other parties may not perform
their obligations as expected. Our reliance on others for the development,
manufacturing and distribution of our technologies and products may result in
unforeseen problems.
Minority Holdings in our Subsidiaries.
We own 90.01% of the issued and outstanding capital stock of our
subsidiary PLT Solutions, Inc. and 40% of Kliks. The remaining 9.9% and 60% of,
respectively, PLT's and Kliks' issued and outstanding capital stock is held by
Dr. Cern, the Chief Technology Officer for ICC and ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇, our
Vice-President. Dr. Cern has certain anti-dilution protection until such time as
we shall have transferred an aggregate of $1 million to PLT. Such anti-dilution
protection could make future financing for us more difficult to obtain, if at
all.
14
Funding Obligations in Kliks.
We are required to provide funding to Kliks in an amount not exceeding $1
million as part of its budget. The amounts are to be advanced by way of loans by
us to Kliks, which loans bear simple interest at a per annum rate of 7%. The
Kliks Board of Directors is currently comprised of our Chairman, Mr. Michael
Braunold, and our Vice-President and Kliks' 60% shareholder, ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇.
Mr. Braunold sits on Kliks Board of Directors as Ambient's designee. Under the
shareholders agreement with Kliks, the Kliks budget is subject to the approval
of Mr. Braunold, in his capacity as a director of Kliks. To date, we have funded
$232,000 of such obligation.
Our efforts to protect our intellectual property rights may not be adequate.
Our success depends on our proprietary technologies. We rely on a
combination of patent, trademark, copyright and trade secret laws, nondisclosure
and other contractual provisions, and technical measures to protect our
intellectual property rights. See "Business." Our patents, trademarks or
copyrights may be challenged and invalidated or circumvented. Any patents that
issue from our pending or future patent applications or the claims in pending
patent applications may not be of sufficient scope or strength or be issued in
all countries where our products can be sold or our technologies can be licensed
to provide meaningful protection or any commercial advantage to us. Others may
develop technologies that are similar or superior to our technologies, duplicate
our technologies or design around our patents. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise use aspects of processes and devices that we regard as
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.
Litigation may be necessary in the future to enforce any patents that may
issue and other intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. There can
be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
this litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, and expend significant resources to
develop non-infringing technology or obtain licenses to infringed technology.
Our failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.
Our stock price is volatile and could continue to be volatile.
Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes
15
for many software companies fluctuate widely for reasons that may be unrelated
to their business or results of operations. The market price of our common stock
may decline below the offering price. General economic, market and political
conditions could also materially and adversely affect the market price of our
common stock and investors may be unable to resell their shares of common stock
at or above the offering price.
It may be difficult for a third party to acquire us.
Provisions of Delaware law could make it more difficult for a third party
to acquire us, even if it would be beneficial to our stockholders.
▇▇▇▇▇ Stock Regulation is applicable to investment in our shares.
Broker-dealer practices in connection with transactions in "▇▇▇▇▇ stocks"
are regulated by certain ▇▇▇▇▇ stock rules adopted by the Securities and
Exchange Commission. ▇▇▇▇▇ stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The ▇▇▇▇▇ stock rules require a
broker-dealer, prior to a transaction in a ▇▇▇▇▇ stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about ▇▇▇▇▇ stocks and the risks in the ▇▇▇▇▇ stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the ▇▇▇▇▇ stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each ▇▇▇▇▇ stock held in the customer's account. In addition,
the ▇▇▇▇▇ stock rules generally require that prior to a transaction in a ▇▇▇▇▇
stock the broker-dealer make a special written determination that the ▇▇▇▇▇
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the ▇▇▇▇▇ stock rules.
The undersigned has carefully reviewed the jurisdictional notice listed
below and agrees to abide by any restrictions contained therein applicable to
the undersigned; and
JURISDICTIONAL NOTICE
Residents of All States:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN
STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
16
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OR THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * *
The undersigned understands that this subscription is not binding upon the
Company until the Company accepts it, which acceptance is at the sole discretion
of the Company and is to be evidenced by the Company's execution of this
Subscription Agreement where indicated. This Subscription Agreement shall be
null and void if the Company does not accept it as aforesaid.
The undersigned understands that the Company may, in its sole discretion,
reject this subscription and, in the event that the Private Placement is
oversubscribed, reduce this subscription in any amount and to any extent,
whether or not pro rata reductions are made of any other investor's subscription
but in any event no later than 5 business days after the Company's receipt of
the funds transmitted herewith. If the Company rejects all or any part of this
subscription, it shall immediately remit to the undersigned that part of the
purchase price representing the number of Shares and Warrant subscribed for by
the undersigned but rejected by the Company.
The undersigned agrees to indemnify the Company and hold it harmless from
and against any and all losses, damages, liabilities, costs, and expenses which
it may sustain or incur in connection with the breach by the undersigned of any
representation, warranty, or covenant made by the undersigned.
Neither this Subscription Agreement nor any of the rights of the
undersigned hereunder may be transferred or assigned by the undersigned.
This Subscription Agreement: (i) may only be modified by a written
instrument executed by the undersigned and the Company; (ii) sets forth the
entire agreement of the undersigned and the Company with respect to the subject
matter hereof; (iii) shall be governed by the laws of the State of Delaware
applicable to contracts made and to be wholly performed therein; and (iv) shall
inure to the benefit of, and be binding upon the Company and the undersigned and
its respective heirs, legal representatives, successors, and assignees.
Unless the context otherwise requires, all personal pronouns used in this
Subscription Agreement, whether in the masculine, feminine or neuter gender,
shall include all other genders.
All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or, if deposited
with a United States national post office, five (5) days after being mailed by
certified or registered mail, return receipt requested, postage prepaid, as
follows: if to the undersigned, to the address set forth on the signature page
hereof; and if to the Company, to the address provided above or to such other
address as the Company or the undersigned shall have designated to the other by
like notice provided, however, a copy of any such notice or other communication
shall also be telecopied to the undersigned at _______________.
17
Ambient Corporation
ACCREDITED INVESTOR CERTIFICATION
PURCHASE OF THE SHARES AND WARRANTS INVOLVES SIGNIFICANT RISKS AND IS A
SUITABLE INVESTMENT ONLY FOR CERTAIN TYPES OF POTENTIAL INVESTORS. SEE "RISK
FACTORS."
The purchase of Purchased Securities is suitable only for investors who
have no need for liquidity in their investments and who have adequate means of
providing for their current needs and contingencies even if the investment in
the Purchased Securities results in a total loss. Purchased Securities will be
sold only to prospective investors which are "accredited investors" under
Regulation D promulgated under the Securities Act. "Accredited Investors" are
those investors which make certain written representations that evidence the
investor comes within one of the following categories:
(Initial the appropriate category)
____ i) Any bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the
Investment Company Act of 1940, as amended, or a business
development company as defined in Section 2(a)(48) of that act; any
Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958, as amended; any plan established
and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, as amended, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such act, which plan fiduciary is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
____ ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended;
____ iii) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership not formed for the specific purpose of acquiring the
Shares offered, with total assets in excess of $5,000,000;
18
____ iv) Any natural person whose individual net worth or joint net worth
with that person's spouse, at the time of investment in the Shares,
exceeds $1,000,000;
____ v) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent calendar years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching that same
income level in the current year;
____ vi) Any partnership or trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Shares, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable of
evaluating the risks and merits of an investment in the units; or
____ vii) Any entity in which all of the equity owners are accredited
investors.
As used in this Subscription Agreement the term "net worth" means the
excess of total assets over total liabilities. In determining income, an
investor should add to his or her adjusted gross income any amounts attributable
to tax exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to an ▇▇▇
or ▇▇▇▇▇ retirement plan, alimony payments and without any amount by which
income from long-term capital gains has been reduced in arriving at adjusted
gross income.
The Company may make or cause to be made such further inquiry and obtain
such additional information as it deems appropriate with regard to the
suitability of prospective investors. The Company may reject subscriptions in
whole or in part if, in its discretion, it deems such action to be in the best
interests of the Company. If the Offering is oversubscribed, the Company will
determine which subscriptions will be accepted.
If any information furnished or representations made by a prospective
investor or others acting on its behalf mislead the Company or the Company as to
the suitability or other circumstances of such investor, of if, because of any
error or misunderstanding as to such circumstances, a copy of this Subscription
Agreement is delivered to any such prospective investor, the delivery of this
Subscription Agreement to such prospective investor shall not be deemed to be an
offer and this Subscription Agreement must be returned to the Company
immediately.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ___ day of ___ August, 2000.
Aggregate Principal Amount of Convertible Debentures $____________
If the Investor is a PARTNERSHIP,
CORPORATION or TRUST:
______________________________________________
Signature
______________________________________________
Print Name of Subscriber Organization
______________________________________________
Print Name and Title of Person Signing
--------------------------------------------------------------------------------
(All Subscribers should please print information
below exactly as you wish it to appear
in the records of the Company)
________________________________________________________________________________
Name and capacity in which subscription Taxpayer I.D. Number
is made -- see below for particular
requirements
Address: Address for notices, if different:
________________________________________________________________________________
Number and Street Number and Street
________________________________________________________________________________
City State Zip Code City State Zip Code
20
ACCEPTANCE OF SUBSCRIPTION
The foregoing subscription is hereby accepted by Ambient Corporation this _____
day of August 2000.
Ambient Corporation
By:_________________________________
Name:_______________________________
Title:______________________________