NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is made as of the 2nd day
of February, 2004, by and between ▇▇▇▇▇▇▇▇.▇▇▇, inc., a Delaware corporation
(the "Company"), and the each purchaser listed on Schedule A hereto
(individually, an "Investor" and collectively, the "Investors").
WHEREAS, the Investors are willing to lend the Company the aggregate sum
of Two Million Dollars ($2,000,000) pursuant to the terms of this Agreement and
a promissory note (a "Note") convertible into shares of the Company's common
stock, $.001 par value (the "Common Stock"), all as more particularly described
in the form of Note attached hereto as Exhibit A; and
WHEREAS, the parties have agreed that the obligation to repay the Notes
shall be secured by a pledge of substantially all of the assets of the Company
and its subsidiaries pursuant to the terms of a Security Agreement in the form
attached hereto as Exhibit B, with said security interest to be on parity with
the indebtedness owned the holders of the Company's Secured Convertible
Promissory Notes in the aggregate principal amount of $1,750,000 issued on May
22, 2003 (the "Senior Noteholders"), which Senior Noteholders have consented to
the sharing of such security interest; and
WHEREAS, as a material inducement to the Investors to purchase the Notes
and in recognition of the substantial benefit which the Company's subsidiaries
will receive from the proceeds of the Notes, the subsidiaries have agreed to
guaranty the Notes pursuant to the terms of a Guaranty in the form attached
hereto as Exhibit C;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and the mutual agreements, representations and warranties, provisions
and covenants contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Purchase and Sale of Notes and Warrants. On the Closing Date (as
hereinafter defined), subject to the terms and conditions of this Agreement,
each Investor hereby agrees to purchase and the Company hereby agrees to sell
and issue a Note in the principal amount set forth opposite such Investor's name
on Schedule A hereto. In addition, the Company shall issue to the Investors
warrants to acquire Two Hundred Four Thousand and Eighty Two (204,082) shares of
the Company's Common Stock (the "Warrants"). The Warrants shall be exercisable,
subject to certain adjustments, at the price of One Dollar and Twenty Two Cents
($1.22) per share, have a term of five (5) years, and shall otherwise be issued
in the form of Exhibit D hereof.
2. The Closing(s). Subject to the conditions set forth below, the initial
purchase and sale of the Notes and the Warrants shall take place at the offices
of Proskauer Rose LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, on or
before February 2, 2004, or at such other time and place as the Company and the
Investors mutually agree (the "Closing" and the "Closing Date"). At the Closing,
the Company shall deliver to each Investor: (i) an executed counterpart of the
Security Agreement; (ii) such Investor's original Note in the amount set forth
opposite such Investor's name on Schedule A; and (iii) a warrant certificate
representing the Warrants issueable to such Investor in the amount set forth
opposite such Investor's name on Schedule A. At the Closing each Investor shall
fund his or her respective Note by cashier's check or wire transfer of
immediately available funds (to an account designated by the Company).
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3. Closing Conditions. The obligation of each Investor to purchase and
fund its Note at the applicable Closing is subject to the fulfillment, to the
Investor's reasonable satisfaction, prior to or at the Closing in question, of
each of the following conditions:
3.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on the date hereof and on and as of the Closing Date as
if made on and as of such date.
3.2 Notes, Warrant Certificates. At the Closing, the Company shall
have tendered to the Investor the appropriate Note and Warrants.
3.3 No Actions. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or authority or legislative body to enjoin, restrain,
prohibit, or obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated by this Agreement.
3.4 Proceedings and Documents. All proceedings in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to the
Investor, and the Company shall have received all such counterpart originals or
certified or other copies of such documents as the Investors may reasonably
request.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that:
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
4.2 Capitalization and Voting Rights. The authorized capital of the
Company as of the date hereof consists of:
(a) Preferred Stock. 3,000,000 shares of Preferred Stock, par value
$0.001 per share (the "Preferred Stock"), of which 425,000 shares have been
designated as Series F Preferred Stock, and 333,333 shares of which are
presently issued and outstanding.
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(b) Common Stock. 200,000,000 shares of common stock, par value
$0.001 per share ("Common Stock"), of which 49,672,293 shares were issued and
outstanding as of January 26, 2004.
4.3 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Security Agreement, the Warrant
and the performance of all obligations of the Company hereunder and thereunder,
and the authorization (or reservation for issuance), sale and issuance of the
Notes and the Warrants, and the Common Stock into which the Notes and Warrants
are convertible or exercisable (the "Underlying Securities"), have been taken on
or prior to the date hereof.
4.4 Valid Issuance of the Underlying Securities. The Underlying
Securities when issued and delivered in accordance with the terms of this
Agreement, the Notes and the Warrants, as applicable, for the consideration
expressed herein and therein, will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer, other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
4.5 Offering. Subject to the truth and accuracy of each Investor's
representations set forth in Section 5 of this Agreement, the offer and issuance
of the Notes and Warrants, together with the Underlying Securities, as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act of 1933, as amended (the "1933 Act") and the qualification or
registration requirements of state securities laws or other applicable blue sky
laws. Neither the Company nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.
4.6 Public Reports. The Company is current in its filing obligations
under the Securities Act of 1934, as amended (the "1934 Act"), including without
limitation as to its filings of Annual Reports on Form 10-K (or 10-KSB, as
applicable) and Quarterly Reports on Form 10-Q (or 10-QSB, as
applicable)(collectively, the "Public Reports"). The Public Reports do not
contain any untrue statement of a material fact or omit to state any fact
necessary to make any statement therein not misleading. The financial statements
included within the Public Reports for the fiscal year ended December 31, 2001,
for the fiscal year ended December 31, 2002, and for each quarterly period
thereafter (the "Financial Statements") have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated and with each other, except that unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present, in all
material respects, the financial condition and operating results of the Company
as of the dates, and for the periods, indicated therein, subject in the case of
unaudited Financial Statements to normal year-end audit adjustments.
4.7 Compliance With Laws. Neither the Company nor any subsidiary has
violated any law or any governmental regulation or requirement which violation
has had or would reasonably be expected to have a material adverse effect on its
business or prospects, and neither the Company nor any subsidiary has received
written notice of any such violation.
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4.8 Violations. The consummation of the transactions contemplated by
this Agreement and all other documents and instruments required to be delivered
in connection herewith and therewith, including without limitation, the Security
Agreement, Notes and Warrants, will not result in or constitute any of the
following: (a) a violation of any provision of the certificate of incorporation,
bylaws or other governing documents of the Company; (b) a violation of any
provisions of any applicable law or of any writ or decree of any court or
governmental instrumentality; (c) a default or an event that, with notice or
lapse of time or both, would be a default, breach, or violation of a lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, or other agreement, instrument, or arrangement to which
the Company is a party or by which the Company or its property is bound; (d) an
event that would permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation of the Company; or (e) the
creation or imposition of any lien, pledge, option, security agreement, equity,
claim, charge, encumbrance or other restriction or limitation on the capital
stock or on any of the properties or assets of the Company.
4.9 Consents; Waivers. Other than the consent of the holders of the
Series F Preferred Stock, which consent has been obtained, no consent, waiver,
approval or authority of any nature, or other formal action, by any person, firm
or corporation, or any agency, bureau or department of any government or any
subdivision thereof, not already obtained, is required in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions provided for herein and therein.
5. Representations and Warranties of the Investors. Each Investor hereby
represents, warrants and covenants, severally and not jointly, that:
5.1 Authorization. Investor has full power and authority to enter
into this Agreement, and such agreement constitutes the valid and legally
binding obligation of Investor, enforceable in accordance with its terms.
5.2 Purchase Entirely for Own Account. This Agreement is made with
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement, Investor hereby confirms, that the
Notes, Warrants and Underlying Securities to be received by Investor will be
acquired for investment for Investor's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Investor has no present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement, Investor further
represents that Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Notes, Warrants or
Underlying Securities.
5.3 Disclosure of Information. Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Notes and Warrants. Investor further represents that he has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Notes and Warrants and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 4 of this Agreement or the right of Investor to rely thereon.
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5.4 Investment Experience. Investor can bear the economic risk of
its investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Notes, Warrants and Underlying Securities.
5.5 Accredited Investor. Investor is an "accredited investor" within
the meaning of the Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect; by virtue of falling within one or more of
the following: (a) a natural person whose individual net worth (or joint net
worth with his spouse) at the time of purchase exceeds $1,000,000; or (b) a
natural person who had individual income in excess of $200,000 or joint income
with his spouse in excess of $300,000 in each of the two most recent years and
reasonably expects to have individual income in excess of $200,000 or joint
income with his spouse in excess of $300,000 in the current year; (c) an
executive officer or director of the Company; or (d) an entity in which all of
the equity owners thereof are natural persons whom are "accredited" by virtue of
falling within one or more of the foregoing categories.
5.6 Restricted Securities. Investor understands that the Notes,
Warrants and Underlying Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such Shares may be resold
without registration under the 1933 Act only in certain limited circumstances.
In the absence of an effective registration statement covering the Notes,
Warrants or the Underlying Securities, as applicable, or an available exemption
from registration under the 1933 Act, the Notes, Warrants and Underlying
Securities must be held indefinitely. Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act, including without limitation
the Rule 144 condition that current information about the Company be available
to the public.
5.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Investor shall not make any disposition of
all or any portion of the Notes, Warrants or Underlying Securities unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 5, and:
(a) there is then in effect a registration statement under the 1933
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of the Note, Warrants or Underlying Securities, as
applicable, under the 1933 Act or any applicable state securities laws.
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5.8 Legends. It is understood that the certificates evidencing the
Notes, Warrants and Underlying Securities may bear one or all of the following
legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required."
(b) Any legend required by state securities laws.
5.9 Tax Advisors. Investor has reviewed with Investor's own tax
advisors the federal, state and local tax consequences of this investment, where
applicable, and the transactions contemplated by this Agreement. Investor is
relying solely on such advisors and not on any statements or representations of
the Company (except the representations and statements of the Company set forth
in this Agreement) or any of its agents and understands that Investor (and not
the Company) shall be responsible for Investor's own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement, except where such liability arises as a result of a failure of a
representation of the Company set forth in this Agreement to be true or a breach
by the Company of a covenant of the Company set forth in this Agreement.
5.10 Investor Counsel. Investor acknowledges that it has had the
opportunity to review this Agreement, the exhibits and the schedules attached
hereto and the transactions contemplated by this Agreement with Investor's own
legal counsel. Investor is relying solely on its legal counsel and not on any
statements or representations of the Company or any of the Company's agents for
legal advice with respect to this investment or the transactions contemplated by
this Agreement.
6. Registration Rights.
6.1 Demand Registration; Limitation. At any time after February 2,
2005, the holders (the "Holders") of a majority of the shares of Common Stock
issued or issuable upon conversion of the Notes shall be entitled to deliver
written notice to the Company demanding the registration of all Registerable
Securities (as hereinafter defined) or such lesser number as the Holders may
elect. Upon the written request of such Holders, the Company shall use its
commercial reasonable best efforts to cause to be registered under the 1933 Act
all of such Registerable Shares. The Holders whom elect to participate in the
registration (or a registration pursuant to Section 6.2 below) are called
"Participating Holders." The term "Registrable Securities" shall mean shares of
the Common Stock issuable upon conversion of the Notes, issued in lieu of cash
interest payments under the Notes and all shares of Common Stock issuable upon
exercise of the Warrants, together with any shares of Common Stock issued or
issuable by way of a stock dividend or stock split or in connection with any
recapitalization, merger, consolidation or other reorganization; provided that
the term "Registrable Securities" shall not include shares of Common Stock
issued or issuable with respect to the Notes which have been either: (i)
publicly resold pursuant to Rule 144 promulgated under the 1933 Act or (ii) are
eligible for sale under Rule 144(k) of the 1933 Act. The Holders of the
Registrable Securities may exercise the rights described in this Section 6.1 a
total of one time only. Notwithstanding any demand by the Holders hereunder, the
Company shall not be required to effect any such registration, and may delay any
such registration, at anytime during which: (i) the Company has pending, or
reasonably anticipates filing within forty five (45) days of receipt of a demand
for registration hereunder, its own registration statement for the public
offering of shares of Common Stock by the Company; (ii) has pending, or has
received a notice of demand registration relating to, a registration statement
for the offer and sale of Common Stock by selling shareholders pursuant to
registration rights outstanding (or hereinafter granted) in favor of other
security holders; or (iii) the Company's Board of Directors determines, in its
good faith discretion, that such registration may have a material adverse effect
on the Company or its plans or prospects; provided that, in any of such events,
the Holders shall continue to have a demand right and the Company shall promptly
notify the Holders of the foregoing and provide the Holders with an estimate of
when they may exercise such demand registration again; and provided further that
solely in the event of clause (iii) above, (x) the Company's ability to delay
such registration shall be limited to durations of not longer than ninety (90)
days and (y) the Company shall not delay more than once during any twelve month
period.
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6.2 Piggy-Back Registration Rights. If at any time hereafter, the
Company shall prepare and file one or more registration statements under the
1933 Act, with respect to a public offering of equity or debt securities of the
Company, or of any such securities of the Company held by its security holders,
other than registration statements on forms S-4 or S-8 (or their successor
forms), the Company will include in any such registration statement such
information as is required, and such number of Registrable Securities held by
the Participating Holders thereof as may be requested by them, to permit a
public offering of the Registrable Securities so requested; provided, however,
that in the case of an underwritten offering, if, in the written opinion of the
Company's or, if pursuant to a demand registration by selling security holders,
such selling holder's, managing underwriter for such offering, the inclusion of
the Registrable Securities requested to be registered, when added to the
securities being registered by the Company or any other selling security
holder(s), would exceed the maximum amount of the Company's securities that can
be marketed without otherwise materially and adversely affecting the entire
offering, then such managing underwriter may exclude from such offering that
portion of the Registrable Securities requested to be so registered, so that the
total number of securities to be registered is within the maximum number of
shares that, in the opinion of the managing underwriter, may be marketed without
otherwise materially and adversely affect the entire offering, provided that at
least a pro rata amount of the securities that otherwise were proposed to be
registered for other stockholders (but not the Company and other than with
respect to securities registered pursuant to demand registration rights if such
securities are otherwise included in the underwriting) is also excluded. In the
event of such a proposed registration, the Company shall furnish the then
registered holders of Registrable Securities with not less than twenty (20)
days' written notice prior to the proposed date of filing of such registration
statement. Such notice shall continue to be given by the Company to registered
holders of Registrable Securities, with respect to subsequent registration
statements filed by the Purchaser, until such time as all of the Registrable
Securities have been registered or may be sold without registration under the
Act or applicable state securities laws and regulations, and without limitation
as to volume pursuant to Rule 144 of the 1933 Act. The holders of Registrable
Securities shall exercise the rights provided for herein by giving written
notice to the Company, within fifteen (15) days of receipt of the Company's
notice of its intention to file a registration statement. In the event the
offering involves an underwritten offering, the Participating Holders shall also
execute, and be a party to, the underwriting agreement of the Company or other
selling security holders.
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6.3 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities that each of the Participating Holders
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of the Registrable Securities.
6.4 Expenses of Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
6.1 and 6.2 for the Investors, including without limitation all registration,
filing and qualification fees, printers' and accounting fees relating or
apportionable thereto, and, if connection with a demand registration pursuant to
Section 6.1 hereof, the fees and disbursements of one counsel appointed by the
Participating Holders. The Participating Holders shall be responsible for
payment of any underwriter's or broker's fee or commission with respect to the
sale of their Registerable Securities.
6.5 Registration Procedures. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts in good faith to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and in furtherance
hereof, the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts in good faith to cause such registration statement to
become and remain effective; provided, that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to the counsel selected by the Participating Holders of a majority
of the Registrable Securities covered by such registration statement copies of
all such documents proposed to be filed, which documents shall be subject to the
review and comment of such counsel;
(b) notify each Participating Holder of the effectiveness of
each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
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(c) furnish to each Participating Holder such number of copies of
such registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder;
(d) use its best efforts in good faith to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Participating Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Holder (provided that the Company shall not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction);
(e) notify each Participating Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such seller or by its own initiative, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed or admitted
to trading on each securities exchange on which securities issued by the Company
are then listed or admitted for trading or, if not so listed or admitted for
trading, then on at least one securities exchange or quotation system on which
securities of companies similar to the Company are then listed or admitted for
trading, and, if admitted for trading on the Over the Counter Bulletin Board or
BBX, use its best efforts in good faith (i) to either (x) secure designation of
all such Registrable Securities covered by such registration statement, if and
to the extent eligible for such designation, as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange
Commission or (y) secure trading on the NASDAQ "SmallCap" market and, without
limiting the generality of the foregoing, and (ii) to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) furnish to each Participating Holder a signed counterpart,
addressed to such Participating Holder, of (i) an opinion of counsel for the
Company, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the comfort
letter, with respect to events subsequent to the date of the financial
statements), as are customarily covered (at the time of such registration) in
opinions of issuer's counsel and in comfort letters delivered to the
underwriters in underwritten public offerings of securities. If and to the
extent that any registration relates to an underwritten public offering, such
opinion and comfort letter shall be sufficient if it is in the form acceptable
to the managing underwriter thereof.
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(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
Participating Holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(j) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts in good faith promptly to
obtain the withdrawal of such order.
6.6 Selection of Underwriter. In the event of a demand registration
pursuant to Section 6.1 hereof, the holders of a majority of the Registrable
Securities initially requesting registration hereunder shall have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval which shall not be unreasonably withheld or
delayed.
6.7 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 6:
(a) The Company will indemnify and hold harmless the Participating
Holders, the partners or officers, directors and shareholders of the
Participating Holders, legal counsel and accountants for the Participating
Holders, against any losses, claims, damages or liabilities (joint or several)
to which they may become subject under the 1933 Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) 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, or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities laws. The Company will reimburse each
Participating Holder for any legal or other expenses reasonably incurred by it
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 6.7 (a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Participating Holder; provided further, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit a Participating Holder, from whom the person asserting any such
losses, claims, damages or liabilities purchased shares in the offering, if a
copy of the prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Participating Holder to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the shares to such person, and if the prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage or
liability.
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(b) Each Participating Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the 1933 Act, legal counsel and accountants for the Company and any
underwriter, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject under the 1933
Act, the 1934 Act or any state securities laws, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Participating Holder expressly for use in
connection with such registration; and such Participating Holder will reimburse
any person intended to be indemnified pursuant to this subsection, for any legal
or other expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
6.7(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such Participating Holder (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action (including any action by
a governmental authority), such indemnified party (the "Indemnified Party")
will, if a claim in respect thereof is to be made against any indemnifying party
(the "Indemnifying Party") under this Section 6.7, 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 the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an Indemnified Party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. No
Indemnifying Party shall, without the consent of the Indemnified Party, consent
to entry of any judgment or enter into any settlement of any such action which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a complete and full release from all
liability in respect of such claim or litigation. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an Indemnifying Party without the
consent of such Indemnifying Party.
(d) If the indemnification provided for in this Section 6.7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Notwithstanding anything to the contrary in this Section 6.7, no indemnified
party shall be required, pursuant to this Section 6.7, to contribute any amount
in excess of the net proceeds received by such indemnifying party from the sale
of securities in the offering to which the losses, claims, damages, liabilities
or expenses of the indemnified party relate.
6.8 Successors and Assigns. The covenants and agreements in this
Section 6 by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
7. Miscellaneous
7.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of the Shares). Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware without giving effect to its conflict of
laws provisions.
7.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.4 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
page or exhibit pages hereof or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
7.5 Finder's Fees. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor, severally and not jointly, shall indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which Investor or any of its officers,
partners, employees or representatives is responsible. The Company shall
indemnify and hold harmless each Investor from any liability for any commission
or compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investor. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon Investor, each future holder of the Shares and the Company, provided that
no such amendment shall be binding on a holder that does not consent thereto to
the extent such amendment treats such party differently than any party that does
consent thereto.
7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.8 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
7.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to" and (d) references to "hereunder" or
"herein" relate to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date provided above.
▇▇▇▇▇▇▇▇.▇▇▇, inc.
By _____________________________________
Name:
Title:
INVESTORS:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and S. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
as tenants by the entireties
________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
________________________________________
Name: S. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
15
Schedule A
Investors
Name of Purchaser/Address Principal Amount of Note
------------------------- ------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and S. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, $2,000,000
as Tenants by the Entireties
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
16
EXHIBIT A
Form of Convertible Promissory Note
EXHIBIT B
Form of Security Agreement
EXHIBIT C
Form of Guaranty
EXHIBIT D
Form of Warrant