Exhibit 10.3
------------
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT, dated as of
the date set forth on the signature page hereto, is entered into by and between
REMOTEMDX INC,, a Utah corporation, with headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ (the "Company"), and the lender named
on the signature page hereto (the "Lender").
W I T N E S S E T H:
WHEREAS, the Company and the Lender are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded, inter alia,
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Lender wishes to lend funds to the Company, subject to and
upon the terms and conditions of this Agreement and acceptance of this Agreement
by the Company, the repayment of which will be represented by 5% convertible
debenture of the Company (the "Debenture"), which Debenture will be convertible
into shares of Common Stock, $0.0001 per share, of the Company (the "Common
Stock"), upon the terms and subject to the conditions of such Debenture.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject to the terms and conditions of this Agreement and the other
Transaction Agreements, the Lender hereby agrees to loan to the Company the
principal amount set forth on the Lender's signature page of this Agreement (the
"Purchase Price"). The obligation to repay the loan from the Lender shall be
evidenced by the Company's issuance of the Debenture to the Lender in such
principal amount. The Debenture (i) shall provide for a conversion price (the
"Conversion Price"), which price may be adjusted from time to time as provided
in the Debenture or in the other Transaction Agreements, and (ii) shall have the
terms and conditions of, and be substantially in the form attached hereto as,
Annex I. The loan to be made by the Lender and the issuance of the Debenture and
Closing Shares are sometimes referred to herein and in the other Transaction
Agreements as the purchase and sale of the Debenture.
1
(ii) The Purchase Price to be paid by the Lender on the day of the
closing of the purchase and sale of the Debenture (the "Closing Date") shall be
payable in United States Dollars.
b. Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
(ii) "Certificates" means the Debenture and one or more certificates
representing the Closing Shares, each duly executed by the Company and issued on
the closing Date in the name of the Lender.
(iii) "Closing Price" means the closing bid price during regular
trading hours of the Common Stock (in U.S. Dollars) on the Principal Trading
Market, as reported by the Reporting Service.
(iv) "Closing Shares" means the shares of Common Stock issued to the
Lender on the Closing Date, equal in number to the number of dollars of the
Purchase Price.
(v) "Company Control Person" means each current director, executive
officer, promoter, and such other Persons as may be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act
(as defined below).
(vi) "Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debenture (including, if relevant, accrued interest on the
Debenture so converted).
(vii) "Effective Date" means the effective date of the Registration
Statement covering the Registrable Securities.
(viii) "Escrow Agent" means the escrow agent identified in the Joint
Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions").
(ix) "Escrow Funds" means the Purchase Price delivered to the Escrow
Agent as contemplated by Sections 1(c) and (d) hereof.
(x) "Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
(xi) "Finder" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc.
(xii) "Holder" means the Person holding the relevant Securities at the
relevant time.
2
(xiii) "Irrevocable Transfer Agent Instructions " means the Irrevocable
Transfer Agent Instructions in the form annexed hereto as Annex VII, as executed
by the Transfer Agent and the Company simultaneously with the execution of this
Agreement.
(xv) "Last Audited Date" means September 30, 2004.
(xvi) "Material Adverse Effect" means an event or combination of
events, which individually or in the aggregate, would reasonably be expected to
(w) adversely affect the legality, validity or enforceability of the Securities
or any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, prospects, or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole, (y)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Agreements or the transactions
contemplated thereby, or (z) materially and adversely affect the value of the
rights granted to the Lender in the Transaction Agreements.
(xvii) "Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
(xix) "Principal Trading Market" means the OTC Electronic Bulletin
Board.
(xx) "Registrable Securities" has the meaning set forth in the
Registration Rights Agreement.
(xxi) "Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement in the form annexed hereto as Annex IV, as
executed by the Lender and the Company simultaneously with the execution of this
Agreement.
(xxii) "Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
(xxiii) "Reporting Service" means Bloomberg LP or if that service is
not then reporting the relevant information regarding the Common Stock, a
comparable reporting service of national reputation selected by the holders of
the Debenture and reasonably acceptable to the Company.
(xxiv) "Securities" means the Debenture and the Shares.
(xxv) "Shares" means the shares of Common Stock representing any or all
of the Conversion Shares and the Closing Shares.
(xxvi) "State of Incorporation" means Utah.
(xxvii) "Trading Day" means any day during which the Principal Trading
Market shall be open for business.
3
(xxviii) "Transaction Agreements" means the Securities Purchase
Agreement, the Debenture, the Joint Escrow Instructions, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, and includes all
ancillary documents referred to in those agreements.
c. Form of Payment; Delivery of Certificates.
(i) The Lender shall pay the Purchase Price by delivering immediately
available good funds in United States Dollars to the Escrow Agent no later than
the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event promptly
following payment by the Lender to the Escrow Agent of the Purchase Price, the
Company shall deliver the Certificates, duly executed on behalf of the Company
and issued in the name of the Lender, to the Escrow Agent.
(iii) By signing this Agreement, each of the Lender and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. Method of Payment. Payment into escrow of the Purchase Price shall
be made by wire transfer of funds to:
Bank of New York
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
ABA# ▇▇▇▇▇▇▇▇▇
For credit to the account of ▇▇▇▇▇▇▇ & Prager LLP
Account No.:
Re: RMDX Transaction
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The Lender represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Lender's right to sell the Shares pursuant to the
Registration Statement or otherwise to sell any of the Securities in compliance
with the 1933 Act, the Lender is purchasing the Securities and will be acquiring
the Shares for its own account for investment only and not with a view towards
the public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof.
4
b. The Lender is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its Affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the loss of the entire Purchase Price.
c. All subsequent offers and sales of the Securities by the Lender
shall be made pursuant to registration of the Shares under the 1933 Act or
pursuant to an exemption from registration.
d. The Lender understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
e. The Lender 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 and the offer of the
Shares which have been requested by the Lender, including those set forth on
Annex V hereto. The Lender and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Lender has also had the opportunity to obtain and to review
the Company's filings on ▇▇▇▇▇ listed on Annex VI hereto (the documents listed
on such Annex VI, to the extent available on ▇▇▇▇▇ or otherwise provided to the
Lender as indicated on said Annex VI, collectively, the "Company's SEC
Documents").
f. The Lender understands that its investment in the Securities
involves a high degree of risk.
g. The Lender hereby represents that, in connection with its purchase
of the Securities, it has not relied on any statement or representation by the
Company or the Finder or any of their respective officers, directors and
employees or any of their respective attorneys or agents or the Finder, except
as specifically set forth herein. The Finder is a third party beneficiary of
this provision.
h. The Lender understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
5
i. This Agreement and the other Transaction Agreements to which the
Lender is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Lender and are valid
and binding agreements of the Lender enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
j. Except for payment of fees to the Finder, payment of which is the
sole responsibility of the Company, the Lender has taken no action which would
give rise to any claim by any Person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby. The Company shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this paragraph that may be due in connection with
the transactions contemplated hereby. The Lender shall indemnify and hold
harmless each of the Company, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
the Lender as of the date hereof and as of the Closing Date that, except as
otherwise provided in the Annex IV hereto or in the Company's SEC Documents:
a. Rights of Others Affecting the Transactions. There are no preemptive
rights of any shareholder of the Company, as such, to acquire the Debenture or
the Shares. No party has a currently exercisable right of first refusal which
would be applicable to any or all of the transactions contemplated by the
Transaction Agreements.
b. Status. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is listed and quoted on the Principal Trading
Market. The Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing and quotation
on the Principal Trading Market, and the Company has maintained all requirements
on its part for the continuation of such listing and quotation.
c. Authorized Shares. The authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, of which approximately
36,228,207 shares are outstanding as of the date hereof, (ii) 40,000 shares of
Series A convertible Preferred Stock, $0.0001 par value, of which approximately
6
24,752 are outstanding as of the date hereof, and (iii) 2,000,000 shares of
Series B convertible Preferred Stock, $0.0001 par value, of which approximately
1,835.824 are outstanding as of the date hereof. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid. The Company has sufficient authorized and unissued shares of Common
Stock as may be necessary to effect the issuance of the Shares. The Shares have
been duly authorized and, when issued upon conversion of, or as interest on, the
Debenture in accordance with its terms, will be duly and validly issued, fully
paid and non-assessable and, except to the extent, if any, provided by the law
of the State of Incorporation, will not subject the Holder thereof to personal
liability by reason of being such Holder.
d. Transaction Agreements and Stock. This Agreement and each of the
other Transaction Agreements, and the transactions contemplated thereby, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Debenture
and each of the other Transaction Agreements, when executed and delivered by the
Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium, and other
similar laws affecting the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and
each of the other Transaction Agreements by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Debenture and the other Transaction
Agreements do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the certificate of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, or (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, except such conflict, breach or default which would
not have or result in a Material Adverse Effect.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Lender as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
7
made therein in light of the circumstances under which they were made, not
misleading. As of the date hereof, the Company has filed all requisite forms,
reports and exhibits thereto required to be filed by the Company with the SEC.
h. Absence of Certain Changes. Since the Last Audited Date, there has
been no material adverse change and no Material Adverse Effect, except as
disclosed in the Company's SEC Documents. Since the Last Audited Date, except as
provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally, or facts or risk
factors as disclosed in the Company's SEC Documents) that has not been disclosed
in writing to the Lender that would reasonably be expected to have or result in
a Material Adverse Effect.
j. Absence of Litigation. Except as may be disclosed in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company before or by any
governmental authority or nongovernmental department, commission, board, bureau,
agency or instrumentality or any other person, wherein an unfavorable decision,
ruling or finding would have a Material Adverse Effect or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements. The
Company is not aware of any valid basis for any such claim that (either
individually or in the aggregate with all other such events and circumstances)
could reasonably be expected to have a Material Adverse Effect. There are no
outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or
stipulations to which the Company is a party or by which it or any of its
properties is bound, that involve the transaction contemplated herein or that,
alone or in the aggregate, could reasonably be expect to have a Material Adverse
Effect.
k. Absence of Events of Default. Except as set forth in Schedule 3(e),
no Event of Default (or its equivalent term), as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (or
its equivalent term) (as so defined in such agreement), has occurred and is
continuing, which would have a Material Adverse Effect.
8
l. Absence of Certain Company Control Person Actions or Events. None of
the following has occurred during the past five (5) years with respect to a
Company Control Person:
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property
of such Company Control Person, or any partnership in which he was a
general partner at or within two years before the time of such filing,
or any corporation or business association of which he was an executive
officer at or within two years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining
him from, or otherwise limiting, the following activities:
(i) acting as an investment advisor, underwriter, broker or dealer
in securities, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or
insurance company, as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, any other Person regulated by the Commodity Futures
Trading Commission ("CFTC") or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting
for more than 60 days the right of such Company Control Person to
engage in any activity described in paragraph (3) of this item, or to
be associated with Persons engaged in any such activity; or
(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the CFTC or SEC has not been subsequently
reversed, suspended, or vacated.
9
m. Prior Issues. Except as set forth on Schedule 3(m), during the six
(6) months preceding the date hereof, the Company has not issued any stock
option grants, convertible securities or any shares of its Common Stock.
n. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Transaction Agreements and
Schedules thereto, or the Company's SEC Documents or those incurred in the
ordinary course of the Company's business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a Material Adverse
Effect. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, operations, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. There
are no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (X) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (Y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
o. No Default. Neither the Company nor any of its subsidiaries is in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it or its property is bound.
p. No Integrated Offering. Neither the Company nor any of its
Affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time within the past six months made any offer or sales of
any security or solicited any offers to buy any security under circumstances
that would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
q. Dilution. The number of Shares issuable upon conversion of the
Debenture may have a dilutive effect on the ownership interests of the other
shareholders (and Persons having the right to become shareholders) of the
Company. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
they have such a potential dilutive effect. The board of directors of the
Company has concluded, in its good faith business judgment, that such issuance
is in the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Shares upon conversion of the Debenture and
upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company, and the Company will honor every Notice of
Conversion (as defined in the Debenture) relating to the conversion of the
Debenture, unless the Company is subject to an injunction (which injunction was
not sought by the Company) prohibiting the Company from doing so.
10
r. Trading in Securities. The Company specifically acknowledges that,
except to the extent specifically provided herein or in any of the other
Transaction Agreements (but limited in each instance to the extent so
specified), the Lender retains the right (but is not otherwise obligated) to
buy, sell, engage in hedging transactions or otherwise trade in the securities
of the Company, including, but not necessarily limited to, the Securities, at
any time before, contemporaneous with or after the execution of this Agreement
or from time to time, but only, in each case, in any manner whatsoever permitted
by applicable federal and state securities laws.
s. Fees to Brokers, Finders and Others. Except for payment of fees to
the Finder, payment of which is the sole responsibility of the Company, the
Company has taken no action which would give rise to any claim by any Person for
brokerage commissions, finder's fees or similar payments by Lender relating to
this Agreement or the transactions contemplated hereby. Lender shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this paragraph that
may be due in connection with the transactions contemplated hereby. The Company
shall indemnify and hold harmless each of Lender, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Lender acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Lender shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Lender acknowledges and agrees that, until
such time as the Common Stock has been registered under the 1933 Act as
contemplated by the Registration Rights Agreement and sold in accordance with an
effective Registration Statement or otherwise in accordance with another
11
effective registration statement, the certificates and other instruments
representing any of the Securities (including the Shares) shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Lender promptly after such filing.
d. Reporting Status. So long as the Lender beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable
action under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be, at
least through the date which is thirty (30) days after the date on which all of
the Debentures have been converted.
e. Use of Proceeds. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Securities) for general
corporate purposes.
f. Reimbursement. If (i) the Lender, other than by reason of its breach
of this Agreement, by reason of its trading of the Common Stock in a manner that
is illegal under the federal securities laws,gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by any shareholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by the
Transaction Agreements, or if the Lender is impleaded in any such action,
proceeding or investigation by any Person, or (ii) the Lender, other than by
reason of its breach of this Agreement, gross negligence or willful misconduct
or by reason of its trading of the Common Stock in a manner that is illegal
under the federal securities laws, becomes involved in any capacity in any
action, proceeding or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation of the
12
transactions contemplated by the Transaction Agreements, or if the Lender is
impleaded in any such action, proceeding or investigation by any Person, then in
any such case, the Company will reimburse the Lender for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this section shall be in addition
to any liability which the Company may otherwise have, shall extend upon the
same terms and conditions to any Affiliates of the Lender who or which are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of Lender and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, Lender and any such affiliate and any such person. The Company also
agrees that neither the Lender nor any such affiliate, partner, director, agent,
employee or controlling person shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of any of the Transaction Agreements,
except for claims arising from Lender's material breach of this Agreement, its
gross negligence or willful misconduct, or by reason of its trading of the
Common Stock in a manner that is illegal under the federal securities laws, and
except as may be expressly and specifically provided in or contemplated by this
Agreement.
g. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, a number of shares (the
"Minimum Available Shares") at least equal to the sum of (x) one hundred fifty
percent (150%) of the number of shares of Common Stock issuable as may be
required to satisfy the conversion rights of the Holders of all outstanding
Convertible Debenture, (in each case, whether such Convertible Debenture was
originally issued to the Holder, the Lender or to any other Holder or Lender).
For the purposes of such calculations, the Company should assume that all such
Debentures were then convertible were then exercisable without regard to any
restrictions which might limit any Lender's right to convert any of the
Convertible Debentures.
h. Publicity, Filings, Releases, Etc. Each of the parties agrees that
it will not disseminate any information relating to the Transaction Agreements
or the transactions contemplated thereby, including issuing any press releases,
holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless the inclusion of such statement
is required, in the opinion of legal counsel for such party, in order for such
party to comply with its disclosure obligations under applicable law. In
furtherance of the foregoing, the Company will provide to the Lender drafts of
the applicable text of any filing intended to be made with the SEC which refers
to the Transaction Agreements or the transactions contemplated thereby as soon
as practicable (but at least three (3) business days before such filing will be
made and will not include in such filing any statement or statements or other
material to which the other party reasonably objects , unless the inclusion of
such statement is required, in the opinion of legal counsel for such party, in
order for such party to comply with its disclosure obligations under applicable
law. Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
(but any descriptive text accompanying or part of such filing shall be subject
to the other provisions of this paragraph).
13
i. Performance by the Company. The Company agrees that unless and until
(i) the Company has affirmatively demonstrated by the use of specific clear and
convincing evidence that the Lender has traded in securities of the Company in
violation of applicable federal securities laws and (ii) there has been issued
against the Lender a final non-appealable decision from a court of competent
jurisdiction to the effect that the Lender has violated applicable federal
securities laws with respect to its trading of the Company's securities, the
Lender shall be assumed to be in compliance with such laws and the Company shall
remain obligated to fulfill all of its obligations under each of the Transaction
Agreements; provided, further, that the Company shall under no circumstances be
entitled to request or demand that the Lender affirmatively demonstrate that it
has not engaged in any such violations as a condition to the Company's
fulfillment of its obligations under any of the Transaction Agreements and shall
not assert, whether as an affirmative claim or a defense to any claim made
against the Company, that the Lender's failure to demonstrate such absence of
such violations (including, but not limited to, its failure to provide any
trading or other records, it being specifically agreed that the Company,
directly or indirectly, will request the Lender or any of its agents, advisors,
brokers or representatives to provide such records in any forum) serves either
as a defense to any breach of the Company's obligations under any of the
Transaction Agreements or otherwise reflects adversely in any manner on the
legality of any action taken by the Lender.
5. TRANSFER AGENT INSTRUCTIONS.
The Company warrants that, with respect to the Securities, other than
the stop transfer instructions to give effect to Section 4(a) hereof, it will
give its transfer agent no instructions inconsistent with instructions to issue
Common Stock from time to time upon conversion of the Debenture in such amounts
as specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Lender or its nominee and in such denominations to be specified by the Lender in
connection with each conversion of the Debenture. Except as so provided, the
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the Lender's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Lender provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Lender of any of the Securities in accordance with clause (1)(B) of Section
4(a) of this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Conversion Shares, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without legend in such name and in such denominations as specified
by the Lender.
Subject to the provisions of this Agreement, the Company will permit
the Lender to exercise its right to convert the Debenture in the manner
contemplated by the Debenture.
14
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion of the Debenture or at the request of the Holder
with respect to any Shares previously issued, provided the Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and the Holder's compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause the Transfer Agent to electronically transmit to the
Holder the Common Stock issuable upon conversion of the Debenture or in
replacement of any Shares previously issued by crediting the account of Holder's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date (as defined in the Debenture) could result
in economic loss to the Lender. As compensation to the Lender for such loss, the
Company agrees to pay late payments to the Lender for late issuance of Shares
upon Conversion, unless the delay is due to causes beyond the reasonable control
of the Company and its Transfer Agent, in accordance with the following schedule
(where "No. Business Days Late" refers to the number of business days which is
beyond three (3) business days after the Delivery Date):(1)
Late Payment For Each $10,000
of Debenture Principal or Interest
No. Business Days Late Amount Being Converted
-------------------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10
$1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c) and the provisions of the immediately
following Section 5(d) of this Agreement) for such delay. Furthermore, in
addition to any other remedies which may be available to the Lender, in the
event that the Company fails to effect delivery of such shares of Common Stock
______________________
(1) Example: Notice of Conversion is delivered on Monday, October 3, 2005. The
Delivery Date would be Thursday, October 6 (the third business day after such
delivery). If the certificate is delivered by Tuesday October 11 (2 business
days after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on October 12, that is 1 "Business Day Late" in the
table below; if delivered on October 19, that 6 "Business Days Late" in the
table.
15
by close of business on the Delivery Date, unless such failure is due to causes
beyond the Company's reasonable control and its Transfer Agent, the Lender will
be entitled to revoke the relevant Notice of Conversion by delivering a notice
to such effect to the Company, whereupon the Company and the Lender shall each
be restored to their respective positions immediately prior to delivery of such
Notice of Conversion; provided, however, that an amount equal to any payments
contemplated by this Section 5(c) which have accrued through the date of such
revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.
If, by the relevant Delivery Date, the Company fails, unless such
failure is due to causes beyond the Company's reasonable control and its
Transfer Agent, to deliver the Shares to be issued upon conversion of a
Debenture and after such Delivery Date, the Holder of the Debenture being
converted (a "Converting Holder") purchases, in an arm's-length open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") in
order to make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Shares to be issued upon such conversion (a
"Buy-In"), the Converting Holder shall have the right, to require the Company to
pay to the Converting Holder, in addition to and not in lieu of the amounts due
under Section 5(c) hereof (but in addition to all other amounts contemplated in
other provisions of the Transaction Agreements, and not in lieu of any such
other amounts), the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Converting
Holder in immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing, if the
Converting Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount which Company will be required to pay to the Converting Holder
will be $1,000.
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
16
The holder of any Debenture shall be entitled to exercise its
conversion privilege with respect to the Debenture notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362 in respect of the conversion of the Debenture.
The Company agrees, without cost or expense to such holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
The Company will authorize its transfer agent to give information
relating to the Company directly to the Lender or the Lender's representatives
upon the request of the Lender or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Lender in connection with a Notice of Conversion, or
(ii) the number of outstanding shares of Common Stock of all shareholders as of
a current or other specified date. On the Closing Date, the Company will provide
the Lender with a copy of the authorization so given to the transfer agent.
6. CLOSING DATE
The closing of the purchase and issuance of Debenture shall occur on
the Closing Date at the offices of the Escrow Agent and shall take place no
later than 3:00 P.M., New York time, on such day or such other time as is
mutually agreed upon by the Company and the Finder.
Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Funds to the Company and to
others and to release the other Escrow Property on the Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell the
Securities to the Lender pursuant to this Agreement on the Closing Date is
conditioned upon:
The execution and delivery of this Agreement and the Registration
Rights Agreement by the Lender;
Delivery by the Lender to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Securities in accordance
with this Agreement;
The accuracy on such Closing Date of the representations and warranties
of the Lender contained in this Agreement, each as if made on such date, and the
performance by the Lender on or before such date of all covenants and agreements
of the Lender required to be performed on or before such date; and
17
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to purchase the
Securities on the Closing Date is conditioned upon:
The execution and delivery of this Agreement and the other Transaction
Agreements by the Company;
Delivery by the Company to the Escrow Agent of the Certificates for the
Closing Shares in accordance with this Agreement;
The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
On such Closing Date, the Registration Rights Agreement shall be in
full force and effect and the Company shall not be in default thereunder;
On such Closing Date, the Lender shall have received an opinion of
counsel for the Company, in form, scope and substance reasonably satisfactory to
the Lender, substantially to the effect set forth in Annex III attached hereto;
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
From and after the date hereof to and including such Closing Date, each
of the following conditions will remain in effect: (i) the trading of the Common
Stock shall not have been suspended by the SEC or on the Principal Trading
Market; (ii) trading in securities generally on the Principal Trading Market
shall not have been suspended or limited; (iii), no minimum prices shall been
established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any material adverse change in any financial market
that, in the reasonable judgment of the Lender, makes it impracticable or
inadvisable to purchase the Debenture.
18
9. INDEMNIFICATION.
a. (i) The Company agrees to indemnify and hold harmless Lender and its
officers, directors, employees, and agents, and each Lender Control Person from
and against any losses, claims, damages, liabilities or expenses incurred
(collectively, "Damages"), joint or several, and any action in respect thereof
to which Lender, its partners, Affiliates, officers, directors, employees, and
duly authorized agents, and any such Lender Control Person becomes subject to,
resulting from, arising out of or relating to any misrepresentation, breach of
warranty or nonfulfillment of or failure to perform any covenant or agreement on
the part of Company contained in this Agreement, as such Damages are incurred,
except to the extent such Damages result primarily from Lender's failure to
perform any covenant or agreement contained in this Agreement or Lender's or its
officers, directors, employees, agents or Lender Control Persons negligence,
recklessness or bad faith in performing its obligations under this Agreement.
(ii) If (x) the Lender becomes involved in any capacity in any action,
proceeding or investigation brought by any stockholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements, or if the
Lender is impleaded in any such action, proceeding or investigation by any
Person, or (y) the Lender becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC, any self-regulatory organization
or other body having jurisdiction, against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements, or if the
Lender is impleaded in any such action, proceeding or investigation by any
Person, then in any such case, other than by reason of the Lender's actions
(other than the Lender's execution of the Transaction Agreements to which it is
a signatory, the payment of the Purchase Price, and/or the exercise of any of
the Lender's rights under any one or more of the Transaction Agreements), the
Company hereby agrees to indemnify, defend and hold harmless the Lender from and
against and in respect of all losses, claims, liabilities, damages or expenses
resulting from, imposed upon or incurred by the Lender, directly or indirectly,
and reimburse such Lender for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as such expenses are incurred. The indemnification and reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have (other than matters specifically addressed in the
Registration Rights Agreement, which shall be governed solely by that
agreement), shall extend upon the same terms and conditions to any Affiliates of
the Lender who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and Lender Control Persons (if any),
as the case may be, of the Lender and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Lender, any such Affiliate and any such
Person. The Company also agrees that neither the Lender nor any such Affiliate,
partner, director, agent, employee or Lender Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, other than by reason of the
Lender's actions (other than the Lender's execution of the Transaction
Agreements to which it is a signatory, the payment of the Purchase Price, and/or
the exercise of any of the Lender's rights under any one or more of the
Transaction Agreements)
19
All claims for indemnification by any Indemnified Party (as defined
below) under this Section 9 shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any Person
claiming indemnification under any provision of this Section 9 (an "Indemnified
Party") might seek indemnity under Section 9(a) is asserted against or sought to
be collected from such Indemnified Party by a Person other than a party hereto
or an Affiliate thereof (a "Third Party Claim"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of this Section 9 against any Person (the "Indemnifying Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim Notice")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under this
Section 9 and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim. The
following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this Section 9(b), then the Indemnifying Party shall have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party,
at the sole cost and expense of the Indemnifying Party, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a
final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party
in the case of any settlement that provides for any relief other than
the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9(a)). The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the first sentence of this subparagraph (x), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate
protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
20
Party Claim controlled by the Indemnifying Party pursuant to this
subparagraph (x), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect to
such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third
Party Claim at any time if it irrevocably waives its right to indemnity
under Section 9(a) with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 9(b), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying
Party fails to give any notice whatsoever within the Dispute Period,
then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in good faith or will
be settled at the discretion of the Indemnified Party (with the consent
of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in subparagraph(z) below, the
Indemnifying Party will not be required to bear the costs and expenses
of the Indemnified Party's defense pursuant to this subparagraph (y) or
of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation.
The Indemnifying Party may participate in, but not control, any defense
or settlement controlled by the Indemnified Party pursuant to this
subparagraph (y), and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section
9(a) or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes its liability or the amount of
21
its liability to the Indemnified Party with respect to such Third Party
Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section
9(a) and the Indemnifying Party shall pay the amount of such Damages to
the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute;
provided, however, that it the dispute is not resolved within thirty
(30) days after the Claim Notice, the Indemnifying Party shall be
enlisted to institute such legal action as it deems appropriate.
(ii) In the event any Indemnified Party should have a claim under
Section 9(a) against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9(a) specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9(a) and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that it the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be enlisted to institute
such legal action as it deems appropriate.
The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.
10. JURY TRIAL WAIVER. The Company and the Lender hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
22
connection with any dispute arising under this Agreement or any of the other
Transaction Agreements and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the non-prevailing party shall reimburse the
prevailing party for any reasonable legal fees and disbursements incurred by the
Lender in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
12. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
23
(c) the third business day after mailing by domestic or international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled
at the following addresses (or at such other addresses as such party may
designate by ten (10) days' advance written notice similarly given to each of
the other parties hereto):
Company: RemoteMdx Inc.
at its address at the head of this Agreement
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (801)
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇
Durham, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇ ) ▇▇▇-▇▇▇▇
Lender: At the address set forth on the signature page of this
Agreement.
with a copy to:
▇▇▇▇▇▇▇ & Prager LLP, Esqs.
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
24
Escrow Agent: ▇▇▇▇▇▇▇ & Prager LLP
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Lender's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the payment
of the Purchase Price, and shall inure to the benefit of the Lender and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
25
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date set forth below.
PURCHASE PRICE: $ _________________
HARBORVIEW MASTER FUND L.P.
By:______________________________ Date: __________________
_______________________________
Name and Title
Harborview Master Fund L.P.
Jurisdiction of Formation: British Virgin Islands
Address:
Harbour House
Waterfront Drive
Road Town, Tortola
British Virgin Islands
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
REMOTEMDX INC.
By:______________________________ Date: September 30, 2005
________________________________
Name and Title
26
ANNEX I FORM OF AMENDED AND RESTATED DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI COMPANY'S SEC DOCUMENTS AVAILABLE ON ▇▇▇▇▇
ANNEX VII IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
27
ANNEX I
TO
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
ARTICLE FORM OF AMENDED AND RESTATED DEBENTURE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 1 US $ 250,000.00
REMOTEMDX INC.
5% SENIOR CONVERTIBLE DEBENTURE DUE September 30, 2008
THIS AMENDED AND RESTATED DEBENTURE (the "Debenture") is the duly
authorized issue of REMOTEMDX INC., a corporation organized and existing under
the laws of the State of Utah (the "Company").
FOR VALUE RECEIVED, the Company promises to pay to Harborview Master
Fund L.P., the registered holder hereof (the "Holder"), the principal sum of Two
Hundred Fifty Thousand and 00/100 Dollars (US $250,000.00) on September 30, 2008
(the "Maturity Date") and to pay interest on the principal sum outstanding from
time to time in arrears at the rate of 5% per annum, accruing from September 30,
2005 the date of initial issuance of this Debenture (the "Issue Date"), on the
date (each, an "Interest Payment Date") which is the earlier of (i) a Conversion
Date (as defined below) or (ii) the Maturity Date, as the case may be. Accrual
of interest shall commence on the first such business day to occur after the
Issue Date and shall continue to accrue on a daily basis until payment in full
of the principal sum has been made or duly provided for. Additional provisions
regarding the payment of interest are provided in Section 4(D) below (the terms
of which shall govern as if this sentence were not included in this Debenture).
This Debenture is being issued pursuant to the terms of the Amended and
Restated Securities Purchase Agreement, dated as of even date (the "Securities
Purchase Agreement"), to which the Company and the Holder (or the Holder's
predecessor in interest) are parties. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement.
This Debenture is subject to the following additional provisions:
1. The Debentures will initially be issued in denominations determined
by the Company, but are exchangeable for an equal aggregate principal amount of
Debentures of different denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration or transfer or
exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
28
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation that is
sufficient to evidence that such proposed transfer complies with the Act and
other applicable state and foreign securities laws and the terms of the
Securities Purchase Agreement. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
4. A. At any time on or after the Issue Date and prior to the time this
Debenture is paid in full in accordance with its terms (including without
limitation after the Maturity Date and after the occurrence of an Event of
Default, as defined below), the Holder of this Debenture is entitled, at its
option, subject to the following provisions of this Section 4, to convert this
Debenture at any time into shares of Common Stock of the Company at a conversion
price for each share of Common Stock ("Conversion Price") equal to 50% of the
Market Price (as defined below) (the "Variable Conversion Rate") or $0.60 (the
"Maximum Price"), whichever is lower. For purposes of this Agreement, the
"Market Price" shall be the average closing bid prices of the Common Stock as
reported, at the option of the Holder, by Bloomberg, LP or by the National
Association of Securities Dealers or the closing bid price on the
over-the-counter market for the twenty (20) consecutive trading days ending
prior to the Conversion Date. In the event the Company fails to pay this
Debenture in full or effect conversion of this Debenture into Shares of Common
Stock of the Company pursuant to Holder's duly tendered Notice of Conversion (as
defined below), the Company shall pay an additional monthly 1.5% cash penalty,
compounded monthly, up to a maximum of 8%.
B. Conversion shall be effectuated by faxing a Notice of Conversion (as
defined below) to the Company as provided in this paragraph. The Notice of
Conversion shall be executed by the Holder of this Debenture and shall evidence
such Holder's intention to convert this Debenture or a specified portion hereof
in the form annexed hereto as Exhibit A. If paid in Common Stock as contemplated
hereby, interest accrued or accruing from the Issue Date to the relevant
Interest Payment Date shall be paid in Common Stock at the Conversion Price
applicable as of such Interest Payment Date. No fractional shares of Common
Stock or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest whole share.
The date on which notice of conversion is given (the "Conversion Date") shall be
deemed to be the date on which the Holder faxes or otherwise delivers the
conversion notice ("Notice of Conversion") to the Company so that it is received
by the Company on or before such specified date, provided that, if such
conversion would convert the entire remaining principal of this Debenture, the
Holder shall also deliver to the Company the original Debentures being converted
no later than five (5) business days thereafter. Facsimile delivery of the
Notice of Conversion shall be accepted by the Company at facsimile number
▇▇▇-▇▇▇-▇▇▇▇; Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇, CFO. Certificates representing Common Stock
upon conversion ("Conversion Certificates") will be delivered to the Holder at
the address specified in the Notice of Conversion (which may be the Holder's
address for notices as contemplated by the Securities Purchase Agreement or a
different address), via express courier, by electronic transfer or otherwise,
within three (3) business days (such third business day, the "Delivery Date")
after the date on which the Notice of Conversion is delivered to the Company as
contemplated in this paragraph B, and, if interest is paid by Common Stock, the
Interest Payment Date. The Holder shall be deemed to be the holder of the shares
issuable to it in accordance with the provisions of this Section 4(B) on the
Conversion Date.
29
C. Notwithstanding any other provision hereof or of any of the other
Transaction Agreements, in no event (except (i) as specifically provided herein
as an exception to this provision, or (ii) while there is outstanding a tender
offer for any or all of the shares of the Company's Common Stock) shall the
Holder be entitled to convert any portion of this Debenture, or shall the
Company have the obligation to convert such Debenture (and the Company shall not
have the right to pay interest hereon in shares of Common Stock) to the extent
that, after such conversion or issuance of stock in payment of interest, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or other convertible securities or of the unexercised portion of
warrants or other rights to purchase Common Stock), and (2) the number of shares
of Common Stock issuable upon the conversion of the Debentures with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such conversion). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, except as otherwise provided in clause (1) of such sentence. The
Holder, by its acceptance of this Debenture, further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions of
this Section 4(C) as if such transferee or assignee were the original Holder
hereof. Nothing herein shall preclude the Holder from disposing of a sufficient
number of other shares of Common Stock beneficially owned by the Holder so as to
thereafter permit the continued conversion of this Debenture.
D. (i) Subject to the terms of Section 4(C) and to the other terms of
this Section 4(D), interest on the principal amount of this Debenture converted
pursuant to a Notice of Conversion shall be due and payable, at the option of
the Company, in cash or Common Stock on the Interest Payment Date.
(ii) If the interest is to be paid in cash, the Company shall make such
payment within three (3) business days of the Interest Payment Date. If the
interest is not paid by such third business day, the interest must be paid in
Common Stock in accordance with the provisions of Section 4(D)(i) hereof, unless
the Holder consents otherwise in each specific instance.
(iii) Notwithstanding the foregoing, the Company's right to issue
shares in payment of such interest is applicable if, and only if, there is then
in effect a current Registration Statement covering the shares to be issued to
the Holder in payment of such interest.
(iv) The number of shares of Common Stock to be issued in payment of
such interest shall be determined by dividing the dollar amount of the interest
to be so paid by the Conversion Price on the relevant Interest Payment Date.
Such Common Stock shall be delivered to the Holder, or per Holder's
instructions, on the Delivery Date for the related Conversion Certificates
pursuant to Section 4(B) hereof.
(iv) If the Company elects to have the interest paid in cash, the
Company shall make such payment within three (3) business days of the Interest
Payment Date. If such payment is not made in cash by such date, it shall be
30
deemed that, subject to the provisions of Section 4(C) hereof, the Company has
elected to pay the interest in stock, if, but only if, the Registration
Statement covering the shares being issued is effective on the date such shares
are issued.
(E) Costs. The Corporation shall pay all documentary, stamp, transfer
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion.
5. Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
7. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds of United States of America currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the Holder at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time; except that the Holder can designate, by notice to the Company, a
different delivery address for any one or more specific payments or deliveries.
8. (A) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Common Stock Issued at Less Than the Variable Conversion Price or
Maximum Price. If prior to the date that is six months following the earlier of
(a) the Maturity Date or (b) payment in full of this Debenture, the Corporation
shall issue any Common Stock other than Excluded Stock (as hereinafter defined)
for a consideration less than the Variable Conversion Rate or Maximum Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issuance, the Variable Conversion Rate or Maximum Price shall be
reduced to such other lower issue price. For purposes of this adjustment, the
issuance of any security or debt instrument of the Company carrying the right to
convert such security or debt instrument into Common Stock or of any warrant,
right or option to purchase Common Stock shall result in an adjustment to the
Variable Conversion Rate or Maximum Price and the Conversion Price upon the
issuance of the above-described security, debt instrument, warrant, right, or
option and again upon the issuance of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
then-applicable Variable Conversion Rate or Maximum Price and Conversion Price.
For the purposes of any adjustment of the Conversion Price pursuant to
clause (i), the following provisions shall be applicable:
31
(A) Cash. In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Corporation shall be deemed to be
the amount of the cash proceeds received by the Corporation for such Common
Stock before deducting therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Corporation) for a consideration in whole or in part
other than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment; provided that such fair
value as determined by the Board of Directors shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of the date
the Board of Directors authorizes the issuance of such shares.
(C) Options and Convertible Securities. In the case of the issuance of
(i) options, warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the time exercisable):
(1) The aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options, warrants or other rights to purchase or acquire
Common Stock shall be deemed to have been issued at the time such options,
warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subclauses (A) and (B)
above), if any, received by the Corporation upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(2) The aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or exchangeable
securities, or upon the exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be deemed to have been issued
at the time such securities were issued or such options, warrants or rights were
issued and for a consideration equal to the consideration, if any, received by
the Corporation for any such securities and related options, warrants or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration (determined in the manner provided
in subclauses (A) and (B) above), if any, to be received by the Corporation upon
the conversion or exchange of such securities, or upon the exercise of any
related options, warrants or rights to purchase or acquire such convertible or
exchangeable securities and the subsequent conversion or exchange thereof;
(3) On any change in the number of shares of Common Stock deliverable
upon exercise of any such options, warrants or rights or conversion or exchange
of such convertible or exchangeable securities or any change in the
32
consideration to be received by the Company upon such exercise, conversion or
exchange, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Variable Conversion Rate or Maximum Price
as then in effect shall forthwith be readjusted to such Variable Conversion Rate
or Maximum Price as would have been obtained had an adjustment been made upon
the issuance of such options, warrants or rights not exercised prior to such
change, or of such convertible or exchangeable securities not converted or
exchanged prior to such change, upon the basis of such change;
(4) On the expiration or cancellation of any such options, warrants or
rights, or the termination of the right to convert or exchange such convertible
or exchangeable securities, if the Conversion Price shall have been adjusted
upon the issuance thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an adjustment been made
upon the issuance of such options, warrants, rights or such convertible or
exchangeable securities on the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such convertible or
exchangeable securities; and
(5) If the Conversion Price shall have been adjusted upon the issuance
of any such options, warrants, rights or convertible or exchangeable securities,
no further adjustment of the Conversion Price shall be made for the actual
issuance of Common Stock upon the exercise, conversion or exchange thereof;
(provided, however, that no increase in the Conversion Price shall be made
pursuant to subclauses (1) and (2) of this subclause (C)).
(ii) Excluded Stock. "Excluded Stock" shall mean (A) shares of Common
Stock issued or reserved for issuance by the Corporation as a stock dividend
payable in shares of Common Stock, or upon any subdivision or split-up of the
outstanding shares of Common Stock (B) shares of Common Stock to be issued to
key employees, consultants, and advisors of the Corporation for under
compensation plans together with any such shares that are repurchased by the
Corporation and reissued to any such employee, consultant or advisor and (C)
shares of Common Stock issuable upon conversion of, or the payment of interest
or dividends upon, any of the following Corporation instruments outstanding on
the date hereof: the Corporation's Series A or Series B Convertible Preferred
Stock , convertible notes, or convertible Series B or Series C Debentures. All
shares of Excluded Stock which the Corporation has reserved for issuance shall
be deemed to be outstanding for all purposes of computations under subparagraph
(8)(i).
(ii) Other Distributions. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of evidence
of indebtedness of the Corporation or any Subsidiary or (iii) of assets, or (iv)
of rights or warrants (excluding those referred to in subparagraph (8)(i)
above), in each such case the Conversion Price in effect immediately prior
thereto shall be reduced immediately thereafter to the price determined by
dividing (1) an amount equal to the difference resulting from (A) the number or
shares of Common Stock outstanding on such record date multiplied by the
Conversion Price per share on such record date, less (B) the fair market value
33
(as determined by the Board of Directors, whose determination shall be
conclusive) of said shares or evidences of indebtedness or assets or rights or
warrants to be so distributed, by (2) the number of shares of Common Stock
outstanding on such record date. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such distribution is not
so made, the Conversion Price then in effect shall be readjusted, effective as
of the date when the Board of Directors determines not to distribute such
shares, evidence of indebtedness, assets, rights or warrants, as the case may
be, to the Conversion Price which would then be in effect if such record date
had not been fixed.
(iv) Rounding of Calculations; Minimum Adjustment. All calculations
under this Section 8 shall be made to the nearest cent or to the nearest one
hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph to the contrary notwithstanding, no adjustment in the Conversion Price
shall be made if the amount of such adjustment would be less than $0.01, but any
such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate $0.01 or more.
(v) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 8 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of this Debenture converted after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of a fractional share of Common Stock pursuant; provided that the
Corporation upon request shall deliver to such holder a due ▇▇▇▇ or other
appropriate instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(B) Statement Regarding Adjustments. Whenever the Conversion Price
shall be adjusted as provided in subparagraph 8 (A) , the Corporation shall
forthwith file, at the office of any transfer agent for its Common Stock and at
the principal office of the Corporation, a statement showing in detail the facts
requiring such adjustment and the Conversion Price that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to the Holder at its address
appearing on the Corporation's records. Each such statement shall be signed by
the Corporation's independent public accountants, if applicable. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of subparagraph (8)(C).
(C) Notice to Holders. In the event the Corporation shall propose to
take any action of the type described in Section 8 (A) the Corporation shall
give notice to each Holder in the manner set forth in subparagraph 8 (B) , which
notice shall specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable upon conversion of this Debenture. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
ten (10) days prior to the date so fixed, and in case of all other action, such
notice shall be given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
34
(j) Treasury Stock. For the purposes of this paragraph 8, the sale or
other disposition of Common Stock theretofore held in the Corporation's treasury
shall be deemed to be an issuance thereof.
(k) The provisions of this Article 8 shall apply to any conversion
effected prior prior to the date that is six months following the earlier of (a)
the Maturity Date or (b) payment in full of this Debenture
9. If, for as long as this Debenture remains outstanding, the Company
enters into a merger (other than where the Company is the surviving entity) or
consolidation with another corporation or other entity or a sale or transfer of
all or substantially all of the assets of the Company to another person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction, that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any such proposed Sale, (i)
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company, except that Section 4(C) shall not apply to such
conversion.
10. If, at any time while any portion of this Debenture remains
outstanding, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes of all or of a part of its assets in a
transaction (the "Spin Off") in which the Company, in addition to or in lieu of
any other compensation received and retained by the Company for such business,
operations or assets, causes securities of another entity (the "Spin Off
Securities") to be issued to security holders of the Company, the Company shall
cause (i) to be reserved Spin Off Securities equal to the number thereof which
would have been issued to the Holder had all of the Holder's Debentures
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the trading day immediately before the Record Date (the "Reserved
Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all
or any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price and any other amounts calculated as
contemplated hereby or by any of the other Transaction Agreements shall be
equitably adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing, (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues shares after the record date of such split, the Conversion Price shall be
deemed to be one-half of what it had been immediately prior to such split; (ii)
if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter,
with respect to any conversion for which the Company issues shares after the
record date of such reverse split, the Conversion Price shall be deemed to be
ten times what it had been calculated to be immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
35
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues shares after the record date of such dividend, the
Conversion Price shall be deemed to be such amount multiplied by a fraction, of
which the numerator is the number of shares (10 in the example) for which a
dividend share will be issued and the denominator is such number of shares plus
the dividend share(s) issuable or issued thereon (11 in the example).
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. The Company shall have the right to prepay this Debenture in full
at any time. In the event the Company intends to prepay any or all of the
outstanding principal or interest on this Debenture, the Company must provide
written notice to the Holder at least 10 days but not more than 15 days prior to
the proposed prepayment date. During such ten-day period, the Holder shall
retain its rights to convert this Debenture, as subject to the terms and
conditions of this Debenture. Such written notice shall be accompanied by a
representation from the Company that it has sufficient funds on deposit either
at its bank or at the transfer agent to effectuate such prepayment.
14. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
exclusive jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state courts of the State of New York sitting in
the City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
15. The Company and the Holder hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the Parties hereto
against the other in respect of any matter arising out of or in connection with
this Debenture.
16. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest on
this Debenture, any Redemption Amount due hereunder or any other amount due,
and, in any such instance, the same shall continue for a period of five (5)
business days; or
b. Any of the representations or warranties made by the Company herein,
in the Securities Purchase Agreement or any of the other Transaction Agreements
or in any certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and delivery
of this Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. Subject to the terms of the Securities Purchase Agreement, the
Company fails to authorize or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion rights of the Holder
in accordance with the terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for shares of Common Stock issued
to the Holder upon conversion of this Debenture and when required by this
36
Debenture or the Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend on any certificate or fails to
cause its Transfer Agent to remove such restricted legend, in each case where
such removal is lawful, as and when required by this Debenture, the Agreement or
the Registration Rights Agreement, and any such failure shall continue uncured
for ten (10) business days; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of any Debenture in this series and such failure shall continue uncured for a
period of thirty (30) days after written notice from the Holder of such failure;
or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or obligation of
the Company under any of the Transaction Agreements and such failure shall
continue uncured for a period of thirty (30) days after written notice from the
Holder of such failure; or
f. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate
shall be entered or filed against the Company or any of its properties or other
assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of
sixty (60) days or in any event later than five (5) days prior to the date of
any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or
37
k. The Company shall have its Common Stock suspended from trading on,
or delisted from, the Principal Trading Market for in excess of ten (10) trading
days; or
l. Any event defined in another provision of this Debenture as an Event
of Default shall have occurred.
If an Event of Default shall have occurred, then, or at any time
thereafter, and in each and every such case, unless such Event of Default shall
have been waived in writing by the Holder (which waiver shall not be deemed to
be a waiver of any subsequent default) at the option of the Holder and in the
Holder's sole discretion, the Holder may consider this Debenture immediately due
and payable (and the Maturity Date shall be accelerated accordingly), without
presentment, demand, protest or notice of any kinds, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder may immediately enforce any and
all of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
17. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
18. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Debenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
38
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: _____________________
REMOTEMDX INC.
By:_________________________________
____________________________________
39
EXHIBIT A
NOTICE OF CONVERSION
OF
5% CONVERTIBLE DEBENTURE DUE _____________
(To be Executed by the Registered Holder in Order to Convert the Debenture)
FROM:_________________________________________________________________("Holder")
DATE:____________________________________________________(the "Conversion Date")
RE: Conversion of $___________ principal amount (the "Converted
Debenture") of the 5% Senior Convertible Debenture Due
____________(the "Debenture") of REMOTEMDX INC. (the "Company") into
_______________ shares (the "Conversion Shares") of Common Stock
(defined below)
CONVERSION DATE: __________________________________
The captioned Holder hereby gives notice to the Company, pursuant to
the Debenture of REMOTEMDX INC. that the Holder elects to convert the Converted
Debenture into fully paid and non-assessable shares of Common Stock, $no par
value (the "Common Stock"), of the Company as of the Conversion Date specified
above. Said conversion shall be based on the following Conversion Price
$__________, representing the original Conversion Price
(as defined in the Debenture)
$__________, representing the original Conversion Price
(as defined in the Debenture), adjusted in accordance with
the provisions of the Debenture.
Based on this Conversion Price, the number of Conversion Shares
indicated above should be issued in the following name(s):
Name and Record Address Conversion Shares
______________________________________ ________________
______________________________________ ________________
______________________________________ ________________
It is the intention of the Holder to comply with the provisions of
Section 4(C) of the Debenture regarding certain limits on the Holder's right to
convert thereunder. Based on the analysis on the attached Worksheet Schedule,
the Holder believes this conversion complies with the provisions of said Section
4(C). Nonetheless, to the extent that, pursuant to the conversion effected
hereby, the Holder would have more shares than permitted under said Section,
this notice should be amended and revised, ab initio, to refer to the conversion
which would result in the issuance of shares consistent with such provision. Any
conversion above such amount is hereby deemed void and revoked.
As contemplated by the Debenture and the Securities Purchase Agreement,
this Notice of Conversion is being sent by facsimile to the telecopier number
and officer indicated above.
40
If this Notice of Conversion represents the full conversion of the
outstanding balance of the Converted Debenture, the Holder either (1) has
previously surrendered the Converted Debenture, duly endorsed, to the Company or
(2) will surrender (or cause to be surrendered) the Converted Debenture, duly
endorsed, to the Company at the address indicated above by express courier
within five (5) business days after delivery or facsimile transmission of this
Notice of Conversion.
The certificates representing the Conversion Shares should be
transmitted by the Company to the Holder via express courier or by electronic
transfer within the time contemplated by the Debenture and Securities Purchase
Agreement after receipt of this Notice of Conversion (by facsimile transmission
or otherwise) to:
As contemplated by the Debenture, the Company should also pay all
accrued but unpaid interest on the Converted Debenture to the Holder.
--If the Company elects to pay such interest in Common Stock, as
contemplated by and subject to the provisions of the Debenture, such
shares should be issued in the name of the Holder and delivered in the
same manner as, and together with, the Conversion Shares.
--If the Company elects or is required to pay the interest paid in
cash, such payment should be made by wire transfer as follows:
___________________________________
HARBORVIEW MASTER FUND L.P.
By: _______________________________
(Signature of Authorized Person)
___________________________________
(Printed Name and Title)
41
NOTICE OF CONVERSION
WORKSHEET SCHEDULE
1. Current Common Stock holdings of Holder and Affiliates _________
2. Shares to be issued on current conversion(s) and other exercise(s) _________
3. Other shares to be issued on other current conversion(s) and
other current exercise(s) _________
4. Other shares eligible to be acquired within next 60 days
without restriction _________
5. Total [sum of Lines 1 through 4] _________
6. Outstanding shares of Common Stock* _________
7. Adjustments to Outstanding
a. Shares known to Holder as previously issued
to Holder or others but not included in Line 6 _________
b. Shares to be issued per Line(s) 2 and 3 _________
c. Total Adjustments [Lines 7a and 7b] _________
8. Total Adjusted Outstanding [Lines 6 plus 76c] _________
9. Holder's Percentage [Line 5 divided by Line 8] ________%
[Note: Line 9 not to be above 4.99%]
* Based on latest SEC filing by Company or information provided by executive
officer of Company, counsel to Company or transfer agent
42
ANNEX IV
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
September 30, 2005 (this "Agreement"), is made by and between REMOTEMDX, INC., a
Utah corporation, with headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ (the "Company"), and each entity named on a
signature page hereto (each, an "Initial Investor") (each agreement with an
Initial Investor being deemed a separate and independent agreement between the
Company and such Initial Investor, except that each Initial Investor
acknowledges and consents to the rights granted to each other Initial Investor
under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Amended
and Restated Securities Purchase Agreement, dated as of September 30, 2005,
between the Initial Investor and the Company (the "Securities Purchase
Agreement"; capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Securities Purchase Agreement), the Company has
agreed to issue and sell to the Initial Investors the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement, shall
include shares of Common Stock of the Company issuable in lieu of accrued
interest through the Maturity Date of the Debentures, as that term is defined in
and as contemplated by the Debentures) upon the terms and subject to the
conditions contained in the Debentures; and
WHEREAS, upon and subject to the terms of the Securities Purchase
Agreement, the Company has agreed to issue the Shares of Common Stock to the
Initial Investors in connection with the issuance of the Debentures, and Shares
of Common Stock (the "Closing Shares") upon the terms and conditions of the
Securities Purchase Agreement; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Registrable Securities (as defined
below);
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Closing Date" shall mean the Initial Closing Date.
43
(b) "Effective Date" means the date the SEC declares a Registration
Statement covering Registrable Securities and otherwise meeting the conditions
contemplated hereby to be effective.
(c) "Held Shares Value" means, for shares of Common Stock acquired by
the Investor upon a conversion of a Debenture within the thirty (30) days
preceding the Restricted Sale Date, but not yet sold by the Investor, the
principal amount of the Debentures converted into such Conversion Shares;
provided, however, that if the Investor effected more than one such conversion
during such thirty (30) day period and sold less than all of such shares, the
sold shares shall be deemed to be derived first from the conversions in the
sequence of such conversions (that is, for example, until the number of shares
from the first of such conversions have been sold, all shares shall be deemed to
be from the first conversion; thereafter, from the second conversion until all
such shares are sold).
(d) "Investor" means the Initial Investors and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Debentures or Registrable
Securities.
(e) "Payment Shares" means shares of Common Stock issued by the Company
as provided in Section 2(b) below.
(f) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by a determination in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time; in each case where such determination shall be accompanied by a
good faith determination by the Board of Directors of the Company that the
registration statement would be materially misleading absent the inclusion of
such information.
(g) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(h) "Registrable Securities" means, collectively, the Conversion
Shares, the Closing Shares, and the Payment Shares.
(i) "Registration Statement" means a registration statement of the
Company under the Securities Act covering Registrable Securities on Form S-3, if
the Company is then eligible to file using such form, and if not eligible, on
Form S-2 or other appropriate form.
44
(j) "Required Effective Date" means the relevant Initial Required
Effective Date or Increased Required Effective Date (as those terms are defined
below).
(k) "Restricted Sale Date" means the first date, other than a date
during a Permitted Suspension Period (as defined below), on which the Investor
is restricted from making sales of Registrable Securities covered by any
previously effective Registration Statement.
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as
practicable after the Closing Date but no later than November 14, 2005 (the
"Required Filing Date"), either a Registration Statement or an amendment to an
existing Registration Statement, in either event registering for resale by the
Investor a sufficient number of shares of Common Stock for the Initial Investors
to sell the Registrable Securities, but in no event less than the number of
shares equal to one hundred fifty percent (150%) of the aggregate of (x) the
number of shares into which the Debentures and all interest thereon through the
Maturity Date would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all Debentures had been issued, had
been eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such issuance, eligibility, accrual
of interest or conversion had in fact occurred as of such date) and (y) the
number of Closing Shares, whether or not such issuance, eligibility or exercise
had in fact occurred as of such date). Unless otherwise specifically agreed to
in writing in advance by the Initial Investor, the Registration Statement (W)
shall include only the Registrable Securities and any additional shares of
common stock subject to currently effective piggyback registration rights
granted prior to the date hereof, held by Company shareholders who have not
waived such registration rights, and (X) shall also state that, in accordance
with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Debentures to prevent dilution resulting from stock
splits, or stock dividends. The Company will use its reasonable best efforts to
cause such Registration Statement to be declared effective on a date (the
"Initial Required Effective Date") which is no later than the earlier of (Y)
five (5) days after oral or written notice by the SEC that it may be declared
effective or (Z) ninety (90) days after the Required Filing Date.
(ii) If at any time (an "Increased Registered Shares Date"), the number
of shares of Common Stock represented by the Registrable Shares, issued or to be
issued as contemplated by the Transaction Agreements, exceeds seventy percent
(70%) of the aggregate number of shares of Common Stock then registered, the
Company shall either
(X) amend the relevant Registration Statement filed by the Company
pursuant to the preceding provisions of this Section 2, if such Registration
Statement has not been declared effective by the SEC at that time, to register,
in the aggregate, at least the number of shares (the "Increased Shares Amount")
equal to (A) the number of shares theretofore issued on conversion of the
Debentures (including any interest paid on conversion by the issuance of
Conversion Shares) , plus (B) one hundred fifty percent (150%) of
45
(I) the number of shares into which the unconverted Debentures and all
interest thereon through the Maturity Date would be convertible at the date of
such filing (assuming for such purposes that all such Debentures had been
issued, had been eligible to be converted, and had been converted, into
Conversion Shares in accordance with their terms, whether or not such issuance
eligibility, accrual of interest, or conversion had in fact occurred as of such
date), and
(II) the number of Closing Shares, or
(Y) if such Registration Statement has been declared effective by the
SEC at that time, file with the SEC an additional Registration Statement (an
"Additional Registration Statement") to register the number of shares equal to
the excess of the Increased Shares Amount over the aggregate number of shares of
Common Stock already registered.
The Company will use its reasonable best efforts to cause such
Registration Statement to be declared effective on a date (each, an "Increased
Required Effective Date") which is no later than (q) with respect to a
Registration Statement under clause (X) of this subparagraph (ii), the Initial
Required Effective Date and (r) with respect to an Additional Registration
Statement, the earlier of (I) five (5) days after notice by the SEC that it may
be declared effective or (II) thirty (30) days after the Increased Registered
Shares Date.
(iii) The aggregate number of shares registered for the Investors in
each Registration Statement or amendment thereto shall be allocated among the
Investors on a pro rata basis among them according to their relative Registrable
Shares included in such Registration Statement.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC by the Required Filing Date, or is not
effective by the relevant Required Effective Date or if there is a Restricted
Sale Date, then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the Company to
the Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to the Periodic Amount Percentage (as
defined below) of the Purchase Price for all Debentures for the period from the
date following the relevant Required Filing Date or the Required Effective Date
or a Restricted Sale Date, as the case may be, to the first relevant Computation
Date, and thereafter to each subsequent Computation Date. The "Periodic Amount
Percentage" means (A) two percent (2%) of the Purchase Price of all Debentures
46
for the first Computation Date after the relevant Required Filing Date, Required
Effective Date or Restricted Sale Date, as the case may be: and (B) two percent
(2%) of the Purchase Price of all Debentures to each Computation Date
thereafter. Anything in the preceding provisions of this paragraph (iii) to the
contrary notwithstanding, after the relevant Effective Date the Purchase Price
shall be deemed to refer to the sum of (X) the principal amount of all
Debentures not yet converted and (Y) the Held Shares Value. By way of
illustration and not in limitation of the foregoing, if the Registration
Statement is filed on or before the Required Filing Date, but is not declared
effective until two hundred (200) days after the Closing Date, the Periodic
Amount will aggregate six percent (6%) of the Purchase Price of the Debentures
theretofore issued (4% for days 121-180 plus 2% for days 181-200).
(iii) Each Periodic Amount will be payable by the Company, except as
provided in the other provisions of this subparagraph (iii), in cash or other
immediately available funds to the Investor on the earlier of (1) on the day
after the Required Filing Date, the Required Effective Date or a Restricted Sale
Date, as the case may be, and (2) (B) the third business day after the date the
Registration Statement is filed or is declared effective, or (C) the third
business day after the Registration Statement has its restrictions removed after
the relevant Effective Date, in each case without requiring demand therefor by
the Investor.
(iv) Notwithstanding the provisions of the immediately preceding
subparagraph (iii),
(i) at the option of the Company, exercisable in its discretion on the
date the Periodic Amount is due; provided, however, that the Company may
exercise this discretion if, but only if the Effective Date is within one
hundred fifty (150) days after the Closing Date and the Registration Statement
covering the Payment Shares is then effective; or
(ii) at the option of the Investor, exercisable in its sole and
absolute discretion by written notice to the Company at any time before the
Periodic Amount is paid,
all or a portion of the Periodic Amount shall be paid by the issuance
of additional shares of Common Stock to the Investor ("Payment Shares") in an
amount equal to the Periodic Amount being paid thereby divided by the then
applicable Conversion Price; provided, further that the Delivery Date for the
Payment Shares shall be three (3) business days after the date the Periodic
Amount is due (if the election is made by the Company) or after the Investor
gives the notice contemplated by clause (ii) of this subparagraph.
(v) The parties acknowledge that the damages which may be incurred by
the Investor if the Registration Statement is not filed by the Required Filing
Date or the Registration Statement has not been declared effective by a Required
Effective Date, including if the right to sell Registrable Securities under a
previously effective Registration Statement is suspended or the shares of the
Company's stock are not listed on the Principal Trading Market, may be difficult
to ascertain. The parties agree that the amounts payable pursuant to the
foregoing provisions of this Section 2(b) represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.
47
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in the
filing or effectiveness of the Registration Statement occurs because of an act
of, or a failure to act or to act timely by the Initial Investor or its counsel.
(vii) "Computation Date" means (A) the date which is the earlier of (1)
thirty (30) days after the Required Filing Date, any relevant Required Effective
Date or a Restricted Sale Date, as the case may be, or (2) the date (after the
Required Filing Date, such Required Effective Date or Restricted Sale Date) on
which the Registration Statement is filed (with respect to payments due as
contemplated by Section 2(b) hereof) or is declared effective or has its
restrictions removed or the shares of the Company's stock are listed on the
Principal Trading Market (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be, and (B) each date which is the
earlier of (1) thirty (30) days after the previous Computation Date or (2) the
date (after the previous Computation Date) on which the Registration Statement
is filed (with respect to payments due as contemplated by Section 2(b) hereof)
or is declared effective or has its restrictions removed or the shares of the
Company's stock are listed on the Principal Trading Market (with respect to
payments due as contemplated by Section 2(b)(ii) hereof), as the case may be.
3. Obligations of the Company. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC by the Required Filing Date
a Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause such Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earlier of (i) the date when the
Investors may sell all Registrable Securities under Rule 144 without volume or
other restrictions or limits or (ii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Permit a single firm of counsel designated by the Initial Investors
(which, until further notice, shall be deemed to be ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq., which firm has requested to receive such notification;
48
each, an "Investor's Counsel") to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects;
(d) Notify each Investor and the Investor's Counsel and any managing
underwriters immediately (and, in the case of (i)(A) below, not less than three
(3) business days prior to such filing) and (if requested by any such person)
confirm such notice in writing no later than one (1) business day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) whenever
the SEC notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a representative
of the Company receives on its behalf) any oral or written comments from the SEC
in respect of a Registration Statement (copies or, in the case of oral comments,
summaries of such comments shall be promptly furnished by the Company to the
Investors); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor's
Counsel with copies of all intended written responses to the comments
contemplated in clause (C) of this Section 3(d) not later than one (1) business
day in advance of the filing of such responses with the SEC so that the
Investors shall have the opportunity to comment thereon;
(e) Furnish to each Investor and to Investor's Counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement thereto,
and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
49
(f) As promptly as practicable after becoming aware thereof, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Comply with Regulation FD or any similar rule or regulation
regarding the dissemination of information regarding the Company, and in
furtherance of the foregoing, and not in limitation thereof, not disclose to the
Investor any non-public material information regarding the Company, under
circumstances that would violate Regulation FD;
(i) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing that the effectiveness of the Registration
Statement is suspended for any reason, whether due to a Potential Material Event
or otherwise, the Investors shall not offer or sell any Registrable Securities,
or engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of such notice until such Investor
receives written notice from the Company that such effectiveness of the
Registration Statement has been restored, whether because the Potential Material
Event has been disclosed to the public or it no longer constitutes a Potential
Material Event or otherwise; provided, however, that the Company may not so
suspend the right to such holders of Registrable Securities during the periods
the Registration Statement is required to be in effect other than during a
Permitted Suspension Period (and the applicable provisions of Section 2(b) shall
apply with respect to any such suspension other than during a Permitted
Suspension Period) . The term "Permitted Suspension Period" means up to two such
suspension periods during any consecutive 12-month period, each of which
suspension period shall not either (i) be for more than five (5) days or (ii)
begin less than ten (10) business days after the last day of the preceding
suspension (whether or not such last day was during or after a Permitted
Suspension Period);
(j) Use its reasonable efforts to secure and maintain the designation
of all the Registrable Securities covered by the Registration Statement on the
Principal Trading Market within the meaning of Rule 100 of Regulation M of the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the quotation of the Registrable Securities on the Principal Trading Market;
50
(k) Provide a transfer agent ("Transfer Agent") and registrar, which
may be a single entity, for the Registrable Securities not later than the
initial Effective Date;
(l) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within five (5) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the Transfer Agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel, which shall
include, without limitation, directions to the Transfer Agent to issue
certificates of Registrable Securities(including certificates for Registrable
Securities to be issued after the Effective Date and replacement certificates
for Registrable Securities previously issued) without legends or other
restrictions; and
(m) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(b) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. In addition, a fee for a single
counsel for the Investors (as a group and not individually) equal to $4,500 for
the review of each Registration Statement shall be borne by the Company.
51
(b) Except as and to the extent specifically set forth in Schedule 5(b)
attached hereto, neither the Company nor any of its subsidiaries has, as of the
date hereof, nor shall the Company nor any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent
specifically set forth in Schedule 5(b) attached hereto neither the Company nor
any of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, and each Lender
Control Person (each, an "Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively referred to as
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to any Claim arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such
Indemnified Party expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (II) be available to the extent such Claim is based on a failure of
52
the Investor to deliver or cause to be delivered the prospectus made available
by the Company or the amendment or supplement thereto made available by the
Company; (III) be available to the extent such Claim is based on the delivery of
a prospectus by the Investor after receiving notice from the Company under
Section 3(f), (g) or (h) hereof (other than a notice regarding the effectiveness
of the Registration Statement or any amendment or supplement thereto), or (IV)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. The Investor will indemnify the Company and
its officers, directors and agents (each, an "Indemnified Party") against any
claims arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company, by or on
behalf of such Investor, expressly for use in connection with the preparation of
the Registration Statement or the amendment or supplement thereto, subject to
such limitations and conditions as are applicable to the indemnification
provided by the Company to this Section 6. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Party or the Indemnified Party, as
the case may be. In case any such action is brought against any Indemnified
Party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
Indemnified Party under this Section 6 for any legal or other reasonable
out-of-pocket expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the Indemnified
Party provided such counsel is of the opinion that all defenses available to the
Indemnified Party can be maintained without prejudicing the rights of the
indemnifying party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Party under
this Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
53
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof) or
intentional misconduct, contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Securities Act and Exchange Act. With a view to making
available to Investor the benefits of Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at any time
permit Investor to sell securities of the Company to the public without
Registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to the Investor so long as the Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) if not available on the SEC's ▇▇▇▇▇ system, a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without Registration; and
(d) at the request of any Investor holding Registrable Securities (a
"Holder"), give its Transfer Agent instructions to the effect that, upon the
Transfer Agent's receipt from such Holder of
(i) a certificate (a "Rule 144 Certificate") certifying (A) that the
Holder's holding period (as determined in accordance with the provisions of Rule
144) for the shares of Registrable Securities which the Holder proposes to sell
(the "Securities Being Sold") is not less than (1) year and (B) as to such other
matters as may be appropriate in accordance with Rule 144 under the Securities
Act, and
54
(ii) an opinion of counsel acceptable to the Company (for which
purposes it is agreed that the initial Investor's Counsel shall be deemed
acceptable if not given by Durham ▇▇▇▇▇ & ▇▇▇▇▇▇▇) that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to the provisions of
Rule 144, even in the absence of an effective Registration Statement,
the Transfer Agent is to effect the transfer of the Securities Being
Sold and issue to the buyer(s) or transferee(s) thereof one or more stock
certificates representing the transferred Securities Being Sold without any
restrictive legend and without recording any restrictions on the transferability
of such shares on the Transfer Agent's books and records (except to the extent
any such legend or restriction results from facts other than the identity of the
Holder, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Holder). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may be
necessary to effectuate the issuance of an unlegended certificate.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debentures) only if the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee and (b) the securities with respect to which such registration rights
are being transferred or assigned.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold an eighty (80%) percent
interest in the Registrable Securities (as calculated by the stated value of the
Debentures). Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be given
in the manner contemplated by the Securities Purchase Agreement, (i) if to the
Company or to the Initial Investor, to their respective address contemplated by
the Securities Purchase Agreement, and (ii) if to any other Investor, at such
address as such Investor shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given in accordance
with this Section 11(b).
55
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions.
(e) The Company and the Investor hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other in respect of any matter arising out of or in connection with
this Agreement or any of the other Transaction Agreements.
(f) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(g) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(h) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(j) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(l) This Agreement (including to the extent relevant the provisions of
other Transaction Agreements) constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
56
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
REMOTEMDX, INC.
By:
Name:
Title:
HARBORVIEW MASTER FUND L.P.
By:
Name:
Title: