SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of September 30, 1999, (this
"Agreement") by and among Cyber Digital, Inc., a New York corporation, with
headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(the "Company"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of 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");
B. The Company has authorized the following new series of its Preferred
Stock, par value $0.05 per share which shall be called the Company's Series D1
Convertible Preferred Stock (the "Preferred Stock"), which shall be convertible
into shares of the Company's common stock, par value $0.01 per share (the
"Common Stock") (as converted, the "Conversion Shares"), in accordance with the
terms of the Company's Certificate of Amendment to its Certificate of
Incorporation for the Preferred Stock, substantially in the form attached hereto
as Exhibit A (the "Certificate of Amendment ");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially (i) an aggregate of 3,000 shares of the Preferred
Stock (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers, and (ii) warrants to
purchase up to a number of shares of Common Stock (as exercised, collectively,
the "Initial Warrant Shares") for each share of Preferred Stock purchased equal
to the quotient of (A) 300, divided by (B) the average of the Closing Bid Price
(as defined in the Certificate of Amendment) of the Common Stock on the three
trading days immediately preceding the Initial Closing Date (as defined below),
such warrants to be substantially in the form attached hereto as Exhibit B (the
"Initial Warrants");
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers will be required to buy and the Company will be required to sell (i) an
aggregate of 2,000 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares) (the "Mandatory Preferred Shares" and, collectively
with the Initial Preferred Shares, the "Preferred Shares") and (ii) warrants to
purchase up to a number of shares of Common Stock (as exercised, collectively,
the "Mandatory
Warrant Shares" and, collectively with the Initial Warrant Shares, the "Warrant
Shares") for each share of Preferred Stock purchased equal to the quotient of
(A) 300, divided by (B) the average of the Closing Bid Price of the Common Stock
on the three trading days immediately preceding the Mandatory Closing Date (as
defined below), such warrants to be substantially in the form attached hereto as
Exhibit B (the "Mandatory Warrants" and, collectively with the Initial Warrants,
the "Warrants");
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company (i) an aggregate of 3,000 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers, and (ii)
Initial Warrants to purchase up to a number of shares of Common Stock for each
Initial Preferred Share purchased equal to the quotient of (A) 300, divided by
(B) the average of the Closing Bid Price of the Common Stock on the three
trading days immediately preceding the Initial Closing Date (the "Initial
Closing"). Subject to the satisfaction (or waiver) of the conditions set forth
in Sections 1(c), 6(b) and 7(b) below, the Company shall issue and sell and each
Buyer shall purchase (i) that number of Mandatory Preferred Shares equal to such
Buyer's pro rata portion of an aggregate of 2,000 Mandatory Preferred Shares
(based on the number of Initial Preferred Shares such Buyer purchased in
relation to the total number of Initial Preferred Shares issued and sold), and
(ii) Mandatory Warrants to purchase up to a number of shares of Common Stock for
each Mandatory Preferred Share purchased equal to the quotient of (A) 300,
divided by (B) the average of the Closing Bid Price of the Common Stock on the
three trading days immediately preceding the Mandatory Closing Date (the
"Mandatory Closing"). The Initial Closing and the Mandatory Closing collectively
are referred to in this Agreement as the "Closings". The aggregate purchase
price (the "Purchase Price") of each Preferred Share and related Warrant at each
of the Closings shall be $1,000.
b. The Initial Closing Date . The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Chicago Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
c. The Mandatory Closing Date. The date and time of the
Mandatory Closing (the "Mandatory Closing Date") shall be 10:00 a.m. Chicago
Time, on the tenth (10th) business day following the Mandatory Share Notice Date
(as defined below), subject to satisfaction (or waiver) of the conditions to the
Mandatory Closing set forth in Sections 6(b) and 7(b) and the conditions set
forth in this Section 1(c) (or such later date as is mutually agreed to by the
Company and the Buyers). The Company shall deliver written notice (the
"Mandatory Share Notice") to each Buyer on a date (the "Mandatory Share Notice
Date") as soon as reasonably practicable, but in no event later than the first
business day, following the date that the Initial Registration Statement (as
defined in the Registration Rights Agreement) registering the Initial
Registrable Securities (as defined in the Registration Rights Agreement) has
been declared effective by the SEC in accordance with the terms of the
Registration Rights Agreement, which date shall not be later than 90 days after
the Initial Closing Date. The Mandatory Share Notice shall set forth (x) each
Buyer's pro rata portion (based on the number of Initial Preferred Shares such
Buyer purchased in relation to the total number of Initial Preferred Shares
purchased by all of the Buyers) of the aggregate number of the Mandatory
Preferred Shares (which aggregate number shall be 2,000 Preferred Shares), which
such Buyer is required to purchase at such Mandatory Closing, (y) the aggregate
Purchase Price for such Buyer's Mandatory Preferred Shares and (z) the date of
the Mandatory Closing Date. Notwithstanding the foregoing, no Buyer shall be
required to purchase the Mandatory Preferred Shares unless each of the following
conditions is satisfied: (i) during the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date, the Initial
Registration Statement covering the resale of the Initial Registrable Securities
at all times has been effective and available for the sale of no less than 200%
of the Conversion Shares issuable upon conversion of the Initial Preferred
Shares and the Mandatory Preferred Shares (as if the Mandatory Preferred Shares
were issued and outstanding and without regard to any limitations on
conversions) and 100% of the Warrant Shares issuable upon exercise of the
Initial Warrants and the Mandatory Warrants (as if the Mandatory Warrants were
issued and outstanding and without regard to any limitations on Exercises); (ii)
during the period beginning on the Initial Closing Date and ending on and
including the Mandatory Closing Date there shall not have occurred (A) an event
constituting a Change of Control (as defined in Section 4(b) of the Certificate
of Amendment), including an agreement to consummate a Change of Control, (B) a
Triggering Event (as defined in Section 3(b) of the Certificate of Amendment) or
an event that with the passage of time would constitute a Trigger Event assuming
it were not cured, or (C) the announcement of a pending Change of Control which
has not been abandoned or terminated; (iii) at all times during the period
beginning on the Mandatory Share Notice Date and ending on and including the
Mandatory Closing Date, the Common Stock shall have been designated for
quotation on the Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. ("NYSE") or The American Stock Exchange,
Inc. ("AMEX") and shall not have been suspended from trading on such exchanges
or
quotation or reporting systems nor shall delisting or suspension by such
exchanges or quotation or reporting systems have been threatened either (A) in
writing by such exchanges or quotation or reporting systems or (B) by falling
below the minimum listing maintenance requirements of such exchanges or
quotation or reporting systems; (iv) during the period beginning on the Initial
Closing Date and ending on and including the Mandatory Closing Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
on a timely basis as set forth in Section 2(d)(ii) of the Certificate of
Amendment and otherwise shall have been in compliance with and shall not have
breached any provision of the Transaction Documents (as defined below) and the
Certificate of Amendment; (v) either (I) on each day during the period beginning
on the Mandatory Share Notice Date and ending on and including the Mandatory
Closing Date, the Proxy Condition Trigger (as defined below) is less than or
equal to 10% or (II) the Company shall have received the approval of the
Company's shareholders, pursuant to Section 4(l), to issue the Conversion Shares
upon the conversion of the Preferred Shares and the Warrant Shares upon exercise
of the Warrants in excess of the Exchange Cap (as defined in the Certificate of
Amendment); and (vi) the Company shall not have previously delivered a Mandatory
Share Notice. The "Proxy Condition Trigger" means the quotient of (A) the sum of
(y) the number of Conversion Shares issuable upon conversion of the Initial
Preferred Shares and the Mandatory Preferred Shares on the date of determination
(as if the Mandatory Preferred Shares were issued and outstanding and without
regard to any limitations on conversions) and (z) the number of the Warrant
Shares issuable upon exercise of the Initial warrants and the Mandatory Warrants
on the date of determination (as if the Mandatory Warrants were issued and
outstanding and without regard to any limitations on exercises) divided by (B)
the number of shares of Common Stock outstanding on the Initial Closing Date.
The Mandatory Closing shall occur on the Mandatory Closing Date at the offices
of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇. The Initial Closing Date and the Mandatory Closing Date collectively
are referred to in this Agreement as the "Closing Dates".
d. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares and
the related Warrants to be issued and sold to such Buyer at the respective
Closing, by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) the Company shall deliver to each
Buyer, stock certificates (in the denominations as such Buyer shall request)
(the "Stock Certificates") representing such number of the Preferred Shares
which such Buyer is then purchasing along with the related Warrants, duly
executed on behalf of the Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire
the Warrant Shares issuable upon exercise thereof (the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares, collectively are
referred to herein as the "Securities"), for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein,
subject to certain restrictions set forth in Section 2(g) of the Certificate of
Amendment, such Buyer does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk and might involve the loss of such
buyer's entire investment. Such Buyer has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.
e. No Governmental Review. Such 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
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of
counsel, in a form reasonably satisfactory to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto)("Rule 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the 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 defined 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 (iii) neither the Company nor any
other person is under any obligation to register such Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN FORM REASONABLY SATISFACTORY TO THE
COMPANY COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a form reasonably satisfactory to the Company, to the
effect that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with assurances reasonably acceptable to the
Company that such Securities can be sold pursuant to Rule 144. Such Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a majority of the capital stock or
holds an equivalent equity or similar interest) are corporations duly organized
and validly existing in good standing under the laws of the jurisdiction in
which they are incorporated, and have the requisite corporate power and
authorization to own properties and to carry on their business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition of the Company and its Subsidiaries taken as a whole, or on
the transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Certificate of Amendment. A complete list of entities in which the
Company, directly or indirectly owns capital stock or holds an equity or similar
interest is set forth in Schedule 3(a).
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5), the Warrants and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Certificate of
Amendment by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including without limitation, the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) this Agreement and the
Registration Rights Agreement and, when executed and delivered, the other
Transaction Documents, constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) prior to the Closing Date, the Certificate of
Amendment will have been filed with Secretary of State of the Sate of New York
and will be in full force and effect.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 30,000,000 shares of Common Stock, of which as of the date
hereof 18,467,283 shares were issued and outstanding, 2,228,500 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 1,261,723 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 10,000,000 shares of preferred stock of the Company, par value $0.05 per
share, of which as of the date hereof, 805 shares were designated as Series A
Preferred Stock of which 0 were issued and outstanding, 8060 shares were
designated Series B Preferred Stock of which 0 were issued and outstanding and
1,000 shares were designated Series C Preferred Stock of which 310 were issued
and outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries; (iv) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (v) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. Issuance of Securities . The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Amendment. At least 2,100,000
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants.
Upon conversion or exercise in accordance with the Certificate of Amendment or
the Warrants, as the case may be, the Conversion Shares and the Warrant Shares
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock. Assuming the
representation and warranties of the Buyers contained in Section 2 are true and
correct, the issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Amendment and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Certificate of Incorporation, any Certificate of
Amendment, Preferences and Rights of any outstanding series of preferred stock
of the Company or the By-laws; (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of any principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of (i) its Certificate of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or (ii) any statute, rule or regulation
applicable to the Company or its Subsidiaries and neither the Company nor its
Subsidiaries is in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order, except where
such violation would not either individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except where such violation would not
either individually or in the aggregate have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and except such as have been
obtained as of the date hereof, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Certificate of Amendment in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might reasonably be
expected to give rise to any of the foregoing. The Company complies with and is
not in violation of the listing requirements of or shall maintain the
requirements to be accepted for trading on, as the case may be, the Principal
Market (as defined below) as in effect on the date hereof and on the Closing
Date and has no actual knowledge of any facts which would reasonably lead to
delisting, suspension or the rejection for trading of the Common Stock by the
Principal Market in the foreseeable future. For purposes of this Agreement, the
"Principal Market" means the securities or trading market upon which the Common
Stock is listed, quoted or reported provided that such market is one of the
following: the Over the Counter Bulletin Board (the "OTCBB"), the Nasdaq
National Market, The Nasdaq SmallCap Market, NYSE or AMEX.
f. SEC Documents; Financial Statements. Since March 31, 1998,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act, (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). A complete list of the Company's SEC
Documents is set forth on the ▇▇▇▇▇ database. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information. If the Common Stock was designated for
quotation on the Nasdaq SmallCap Market, the Company would meet the requirements
for the use of Form S-3 for registration of the resale of the Registrable
Securities (as defined in the Registration Rights Agreement) by each Buyer.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since March 31, 1999 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any knowledge of any fact which would reasonably lead a creditor
to do so.
h. Absence of Litigation. Except as disclosed in Schedule
3(h), there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set forth
in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Certificate of Amendment and the transactions contemplated
thereby. The Company further acknowledges that Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the
Transaction Documents and the Certificate of Amendment and the transactions
contemplated thereby and any advice given by any of the Buyers or any of their
respective representatives or agents in connection with the Transaction
Documents and the Certificate of Amendment and the transactions contemplated
thereby is merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance of any of the Securities under the 1933 Act or cause this offering of
Securities to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Nasdaq SmallCap
Market, nor will the Company or any of its Subsidiaries take any action or steps
that would require registration of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
their relationship with the Company, neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has notified
the Company's Board of Directors that such officer intends to leave the Company
or otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, except where such failure would not have either
individually or in the aggregate a Material Adverse Effect. Except as set forth
on Schedule 3(n), none of the Company's trademarks, trade names, service marks,
service ▇▇▇▇ registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement, except
where such expiration or termination would not have either individually or in
the aggregate a Material Adverse Effect. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademarks, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service ▇▇▇▇ registrations, trade
secrets or other similar rights of others, or of any such development of similar
or identical trade secrets or technical information by others and, except as set
forth on Schedule 3(n), no claim, action or proceeding has been made or brought
against, or to the Company's knowledge, has been threatened against, the Company
or its Subsidiaries regarding trademarks, trade name rights, patents, patent
rights, inventions, copyrights, licenses, service names, service marks, service
▇▇▇▇ registrations, trade secrets or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
o. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. The Company and each of its Subsidiaries has
made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on
Schedule 3(r) and in the SEC Documents filed at least ten days prior to the date
hereof and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Amendment and
its obligation to issue the Warrant Shares in accordance with this Agreement and
the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
t. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the Buyers and the Company fulfilling their obligations under the
Transaction Documents and the Certificate of Amendment, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
u. Rights Agreement. As of the date hereof, the Company has
not adopted a shareholder rights plan or similar arrangement relating to
accumulation of
beneficial ownership of Common Stock or a change in control of the Company.
v. Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiary's business and
operations that could be materially adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on the foregoing, the Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
data-sensitive functions for all dates before and after January 1, 2000.
w. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance in all material respects with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in com-pliance in all material
respects with all terms and conditions of any such permit, license or approval.
x. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
y. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
z. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyer relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
aa. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the applicable Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at the Closing pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states of
the United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
c. Reporting Status. Until the later of (i) the date which is
one year after the date on which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) none of
the Preferred Shares or Warrants is outstanding (the "Reporting Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company 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 otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K or Form 10-KSB, its
Quarterly Reports on Form 10-Q or Form 10-QSB, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; and (ii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and (B) 100% the
number of shares of Common Stock needed to provide for the issuance of the
Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
g. Right of Participation. Subject to the exceptions described
below, during the period beginning on the date hereof and ending on, and
including, the date which is one year after the date the Registration Statement
registering the Registrable Securities is declared effective by the SEC the
Company and its Subsidiaries shall not negotiate or contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible into or exchangeable for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("Future Offerings"), unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "Future Offering Notice")
describing the proposed Future Offering, including the size, terms and
conditions thereof, and providing each Buyer an option to purchase up to its
Aggregate Percentage (as defined below) of the securities to be issued in such
Future Offering, as of the date of delivery of the Future Offering Notice, in
the Future Offering (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations"). For purposes of
this Section 4(g), "Aggregate Percentage" at any time with respect to any Buyer
shall mean the percentage obtained by multiplying (I) 50% by (II) the quotient
of (i) the aggregate number of the Preferred Shares issued to such Buyer on the
Closing Date by (ii) the aggregate number of the Preferred Shares issued to all
the Buyers on the Closing Date. A Buyer can exercise its option to participate
in a Future Offering by delivering written notice thereof to participate to the
Company within three (3) business days after receipt of a Future Offering
Notice, which notice shall state the quantity of securities being offered in the
Future Offering that such Buyer will purchase, up to its Aggregate Percentage,
and that number of securities it is willing to purchase in excess of its
Aggregate Percentage. In the event that one or more Buyers fail to elect to
purchase up to each such Buyer's Aggregate
Percentage of the Future Offering, then each Buyer which has indicated that it
is willing to purchase a number of securities in such Future Offering in excess
of its Aggregate Percentage shall be entitled to purchase up to its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more of the Buyers have
not elected to purchase. In the event the Buyers fail to elect to fully
participate in the Future Offering within the periods described in this Section
4(g), the Company shall have 45 days thereafter to sell the securities of the
Future Offering that the Buyers did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 45 day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Buyers in the manner provided in this Section 4(g). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank, (ii) the
Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital) or (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof provided the terms of such securities are not
amended after the date hereof, (v) the grant of additional options or warrants,
or the issuance of additional securities, under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees, officers or directors for services provided to the Company. The
Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Amendment. The Company shall maintain the Common Stock's
authorization for listing, quotation or reporting on the OTCBB, The Nasdaq
SmallCap Market, the Nasdaq National Market, AMEX or NYSE. Neither the Company
nor any of its Subsidiaries shall take any action which may result in the
discontinuance of quotation or reporting of the Common Stock on the OTCBB (other
than to switch listings from the OTCBB to The Nasdaq SmallCap Market, the Nasdaq
National Market, AMEX or NYSE). The Company shall promptly, and in no event
later than the following business day, offer to provide to such Buyer copies of
any notices it receives from The Nasdaq SmallCap Market, the Nasdaq National
Market, AMEX or NYSE regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange, provided that
such
notices shall not contain any material non-public information. The Company shall
pay all fees and expenses in connection with satisfying its obligations under
this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay a non-accountable expense allowance of $45,000 to
the Buyers or their designees.
j. Transactions With Affiliates. So long as (i) any Preferred
Shares or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value of $500,000 the Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
or permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, person who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a "Related
Party"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
k. Filing of Form 8-K. On or before the third business day
following the Initial Closing Dates and the first business day following each of
the Mandatory Share Notice Date, the Mandatory Closing Date, the Additional
Share Notice Dates and the Additional Closing Dates the Company shall file a
Form 8-K with the SEC describing the terms of the transaction contemplated by
the Transaction Documents and consummated at such Closing, in each case in the
form required by the ▇▇▇▇ ▇▇▇.
l. Proxy Statement. The Company shall provide each shareholder
entitled to vote at the next meeting of shareholders of the Company, which
meeting shall occur on or before January 31, 1999 (the "Shareholder Meeting
Deadline"), a proxy statement, which has been previously reviewed by the Buyers
and a counsel of their choice, soliciting each such shareholder's affirmative
vote at such shareholder
meeting for approval of the Company's issuance of all of the Securities as
described in this Agreement, and the Company shall use its best efforts to
solicit its shareholders' approval of such issuance of the Securities and cause
the Board of Directors of the Company to recommend to the shareholders that they
approve such proposal. If the Company fails to hold a meeting of its
shareholders by the Shareholder Meeting Deadline, then, as partial relief (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Preferred Shares an amount in
cash per Preferred Share equal to the product of (i) $1,000; multiplied by (ii)
0.02; multiplied by (iii) the quotient of (x) the number of days after the
Shareholder Meeting Deadline that a meeting of the Company's shareholders is not
held, divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five (5) days of the earlier of (I) the
holding of the meeting of the Company's shareholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Shareholder Meeting Deadline. In the event the
Company fails to make such payments in a timely manner, such payments shall bear
interest at lower of the rate of 2.0% per month or the maximum rate allowable
under New York law (pro rated for partial months) until paid in full.
m. Corporate Existence. So long as any Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on The
Nasdaq SmallCap Market, the Nasdaq National Market or NYSE.
n. Nasdaq Listing. The Company shall use its best efforts to,
on or before the date which is 45 days after the date of this Agreement, have
all the shares of Common Stock, including the Conversion Shares and the Warrant
Shares listed on the NYSE, the Nasdaq National Market or The Nasdaq SmallCap
Market.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (in the form attached hereto as Exhibit E, the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
the Warrant Shares, prior to registration of the Conversion Shares and the
Warrant Shares under the ▇▇▇▇ ▇▇▇) will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section 5 shall affect in
any way each Buyer's obligations and agreements set forth in Section 2(g) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Securities. If a Buyer provides the Company with an opinion of counsel,
in a form reasonably satisfactory to the Company, that registration of a resale
by such Buyer of any of such Securities is not required under the 1933 Act or
such Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares and the Initial
Warrants to each Buyer at the Initial Closing is subject to the satisfaction, at
or before the Initial Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
(ii) The Certificate of Amendment shall have been filed with
the Secretary of State of the State of New York.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Initial Preferred Shares and the Initial
Warrants being purchased by such Buyer at the Initial Closing by wire
transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true
and correct as of the date when made and as of the Initial Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Initial Closing Date.
The Company shall have received a certificate, executed by an
authorized signatory for such Buyer, dated as of the Initial Closing
Date, to the foregoing effect.
(v) No statute, rule regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
b. Mandatory Closing Date. The obligation of the Company
hereunder to issue and sell the Mandatory Preferred Shares and the Mandatory
Warrants to each Buyer at the Mandatory Closing is subject to the satisfaction,
at or before the Mandatory Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares and the related
Mandatory Warrants being purchased by such Buyer at the Mandatory
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Mandatory
Closing Date. The Company shall have received a certificate, executed
by an authorized signatory for such Buyer, dated as of the Initial
Closing Date, to the foregoing effect.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares and the Initial Warrants at
the Initial Closing is subject to the satisfaction, at or before the Initial
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
(i) The Company shall have executed each of this Agreement and
the Registration Rights Agreement, and delivered the same to such
Buyer.
(ii) The Certificate of Amendment, shall have been filed with
the Secretary of State of the State of New York, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
(iii) The Common Stock shall be designated for quotation on
the Nasdaq National Market or The Nasdaq SmallCap Market or listed on
AMEX or NYSE, and shall not have been suspended from trading on or
delisted from such exchanges or quotation or reporting systems nor
shall delisting or suspension by such exchanges or quotation or
reporting systems have been threatened either (A) in writing by such
exchanges or quotation or reporting systems or (B) by falling below the
minimum listing maintenance requirements of such exchanges or quotation
or reporting systems and all of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise of the Initial Preferred
Shares and the related Warrants, as the case may be, to be sold at the
Initial Closing shall be listed upon or available for quotation on The
Nasdaq SmallCap Market, the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or the Certificate
of Amendment to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Initial Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Initial Warrants and the Stock Certificates (in such
denominations as such Buyer shall request) for the Initial Preferred
Shares being purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares and
exercise of the Warrants, at least 2,100,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of New York within ten days of the
Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five (5) days of the
Initial Closing Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request upon reasonable advance notice.
b. Mandatory Closing Date . The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares and the Mandatory Warrants
at the Mandatory Closing is subject to the satisfaction, at or before the
Mandatory Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(c).
(ii) The Certificate of Amendment, shall be in full force and
effect and shall not have been amended since the Initial Closing Date,
and a copy thereof certified by the Secretary of State of the State of
New York shall have been
delivered to such Buyer.
(iii) The Common Stock shall be designated for quotation on
the Nasdaq National Market or The Nasdaq SmallCap Market or listed on
AMEX or NYSE or reported on the OTCBB, and shall not have been
suspended from trading on or delisted from such exchanges or quotation
or reporting systems nor shall delisting or suspension by such
exchanges or quotation or reporting systems have been threatened either
(A) in writing by such exchanges or quotation or reporting systems or
(B) by falling below the minimum listing maintenance requirements of
such exchanges or quotation or reporting systems and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Mandatory Preferred Shares and the related Warrants, as
the case may be, to be sold at the Mandatory Closing shall be listed
upon or available for quotation or reported on the OTCBB, The Nasdaq
SmallCap Market, the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or the Certificate
of Amendment to be performed, satisfied or complied with by the Company
at or prior to the Mandatory Closing Dates. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Mandatory Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the Mandatory
Closing Date regarding the representation contained in Section 3(c)
above.
(v) Such Buyer shall have received the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP dated as of the Mandatory Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Mandatory Warrants and the Stock Certificates (in such
denominations as such Buyer shall request) for the Mandatory Preferred
Shares being purchased by such Buyer at the Mandatory Closing.
(vii) The Board of Directors of the Company shall not have
amended the Resolutions.
(viii) As of the Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares
of Common Stock equal to at least 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the
then outstanding Preferred Shares (without regard to any limitations on
conversions and as if the Mandatory Preferred Shares were issued and
outstanding) and 100% of the number of shares of Common Stock which
would be issuable upon exercise in full of the then outstanding
Warrants (without regard to any limitations on exercises and as if the
Mandatory Warrants were issued and outstanding).
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be in
effect as of the Mandatory Closing Date.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Mandatory Closing
Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of New York within ten days of the
Mandatory Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Mandatory Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Mandatory
Closing Date.
(xiv) During the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date, the
Registration Statement covering the resale of the Conversion Shares and
the Warrant Shares has been declared effective by the SEC and at all
times has been effective and available for the sale of no less than
200% of the Conversion Shares issuable upon conversion of the Initial
Preferred Shares and the Mandatory Preferred Shares (as if the
Mandatory Preferred Shares were issued and outstanding and without
regard to any limitations on conversions) and 100% of the Warrant
Shares issuable upon exercise of the Initial warrants and the Mandatory
Warrants (as if the Mandatory Warrants were issued and outstanding and
without regard to any limitations on Exercises)
(xv) The Initial Registration Statement has been declared
effective by the SEC in accordance with the terms of the Registration
Rights Agreement on or before the date which is 90 days after the
Initial Closing Date.
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request upon
reasonable advance notice.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Amendment, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Amendment or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Amendment or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Indemnitee (other
than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) not a shareholder derivative suit) and arising out of or
resulting (i) from the execution, delivery, performance or enforcement of the
Transaction Documents or the Certificate of Amendment, (ii) from any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (iii) solely from the status of
such Buyer or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS .
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of New York shall govern all issues concerning the relative rights
of the Company and its shareholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers which purchased at least two-thirds (2/3) of the Initial
Preferred Shares on the Initial Closing Date or, if prior to the Initial Closing
Date, the Buyers listed on the Schedule of Buyers as being obligated to purchase
at least two-thirds (2/3) of the Initial Preferred Shares, then outstanding, and
no provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Shares or Warrants then outstanding. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents or the Certificate of Amendment
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Cyber Digital, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇▇, President
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Co.
▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Compliance Department
If to a Buyer, to it at the address and facsimile number set
forth on the Schedule of Buyers, with copies to such Buyer's representatives as
set forth on the Schedule of Buyers, or at such other address and/or facsimile
number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party five days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communications, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
g. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Buyers which purchased at least
two-thirds (2/3) of the Initial Preferred Shares on the Initial Closing Date,
including by merger or consolidation. A Buyer may assign some or all of its
rights hereunder to (i) a Permitted Transferee (as defined below) without the
consent of the Company and (ii) to a person which is not a Permitted Transferee
with the prior consent of the Company, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained in the Transaction
Documents, the Buyers shall be entitled to pledge the Securities in connection
with a bona fide margin account or other loan secured by such Securities. For
purposes of this Section 9(g), a "Permitted Transferee" shall mean (i) a Buyer,
(ii) an Affiliate (as that term is defined in Rule 501(b) under the 1933 act) of
a Buyer, (iii) any holder of Preferred Shares or Warrants and (iv) any Affiliate
of a holder of Preferred Shares or Warrants.
h. No Third Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is
terminated under Section 9(l), the representations and warranties of the Company
and the Buyers contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive each of the Closings, provided, however, that the
representations and Warranties of the Company and the Buyers contained in
Sections 2 and 3 shall survive each of the Closings only until such time as the
Preferred Shares and the Warrants issued at such closing or the Conversion
Shares or the Warrant Shares issuable upon conversion or exercise thereof, are
no longer held by the Buyers. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall
have the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the
Company shall be entitled, without the prior approval of the Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Company shall use its
reasonable efforts to consult with each Buyer in connection with any such press
release or other public disclosure prior to its release and each Buyer shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Termination. In the event that the Initial
Closing shall not have occurred with respect to a Buyer on or before three (3)
business days from the date hereof due to the Company's or the Buyer's failure
to satisfy the conditions set forth in Sections 6 and 7 above (and the
non-breaching party's failure to waive such unsatisfied condition(s)), the
non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 9(l), the Company shall remain
obligated to reimburse a non-breaching Buyer for expenses up to the amount
described in Section 4(i) above.
m. Placement Agent. The Company acknowledges
that it has engaged Zanett Securities Corporation as placement agent in
connection with the sale of the Preferred Shares and the related Warrants. The
Company shall be responsible for the payment of any placement agent's fees or
brokers' commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out of pocket expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
o. Remedies. Each Buyer and each holder of the
Securities shall have all rights and remedies set forth in the Transaction
Documents and the Certificate of Amendment and all rights and remedies which
such holders have been granted at any time under any other agreement or contract
and all of the rights which such holders have under any law. Any person having
any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the
Company makes a payment or payments to any Buyer hereunder or pursuant to the
Registration Rights Agreement, the Certificate of Amendment or the Warrants or
such Buyer enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CYBER DIGITAL, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management,
L.L.C.
Its: Investment Manager
By: /s/ ▇.▇. ▇▇▇▇▇▇▇
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Name: ▇.▇. ▇▇▇▇▇▇▇
Its: President By: /s/ ▇▇▇▇▇ ▇'▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇'▇▇▇▇▇
Its: Authorized Signatory
SCHEDULE OF BUYERS
Number of
Initial
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
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HFTP Investment c/oPromethean Asset Management, L.L.C. 3,000 Promethean Investment Group, L.L.C.
L.L.C. ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇. Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇ Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Residence: New York
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 312-902-1061
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(p) - Liens
Schedule 3(u) - Tax Status
EXHIBITS
Exhibit A - Form of Certificate of Amendment
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions