BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT, dated as of ________, 2006, is
entered into by and between MSGI SECURITY SOLUTIONS, INC., a Nevada corporation
with headquarters located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the
"Company"), and each individual or entity named on an executed counterpart of
the signature page hereto (each such signatory is referred to as a "Buyer")
(each agreement with a Buyer being deemed a separate and independent agreement
between the Company and such Buyer, except that each Buyer acknowledges and
consents to the rights granted to each other Buyer [each, an "Other Buyer"]
under such agreement and the Transaction Agreements, as defined below, referred
to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in 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, each Buyer wishes to lend funds in the amount of the
Purchase Price (as defined below) 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 a Promissory Note of the
Company (the "Note"), on the terms and conditions referred to herein; and
WHEREAS, in connection with the loan to be made by the Buyer,
the Company has agreed to issue the Note and the Warrant (as defined below) to
the Buyer;
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 (as defined below), the Buyer hereby agrees to
loan to the Company the principal amount specified on the Buyer's signature page
of this Agreement (the "Purchase Price"), out of the Aggregate Purchase Price
(as defined below).
(ii) The actual total Purchase Price of all Buyers (including
Other Buyers), which shall not be less than the Minimum Aggregate Purchase Price
and not more than the Maximum Aggregate Purchase Price (as those terms are
defined below), is referred to as the "Aggregate Purchase Price."
(ii) The obligation to repay the loan of the relevant Purchase
Price from the Buyer shall be evidenced by the Company's issuance of one or more
Notes to the Buyer in the principal amount of One Hundred Thousand Dollars
($100,000.00) for each Eighty-two Thousand Dollars ($82,000.00) of the Purchase
Price paid by the Buyer on or in connection with the relevant Closing Date. The
principal amount of each Note, as of any relevant date, is referred to as the
"Note Principal" and the aggregate Note Principal of all Notes, as of any
relevant date, is referred to as the "Aggregate Note Principal." Each Note shall
be payable on the date (the "Stated Maturity Date") which is the first annual
anniversary of the Initial Closing Date or the date on which the New Transaction
Threshold (as defined in the Note) occurs. Each Note shall be in the form of
Annex I annexed hereto.
(iii) In consideration of the loan to be made by the Buyer,
the Company will issue to such Buyer the Warrant to purchase the number of
shares of the Company's Common Stock, par value $.01 per share ("Common Stock")
as provided in Section 4 hereof.
(iv) The loan to be made by the Buyer and the issuance of the
Note and the Warrant to the Buyer and the other transactions contemplated hereby
are sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Securities (as defined below), and are referred to
collectively as the "Transactions."
b. Certain Definitions. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
"Additional Closing Date" means, if there is more than one
Closing Date, the relevant Closing Date after the Initial Closing Date.
"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.
"Buyer Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Buyer
pursuant to Rule 405 under the 1933 Act or Section 20 of the ▇▇▇▇ ▇▇▇.
"Buyer's Allocable Share" means the fraction, of which the
numerator is the Buyer's Purchase Price and the denominator is the Maximum
Aggregate Purchase Price.
"Buyer's Closing Date" means, for each Buyer, the Closing Date
for the Purchased Securities purchased by and sold to such Buyer.
"Certificates" means the ink-signed Note and the Warrant, each
duly executed by the Company and issued on the relevant Closing Date in the name
of the Buyer.
"Closing Date" means the date of the closing of the
Transactions, as provided herein; provided, however, that, once subscriptions
for at least the Minimum Aggregate Purchase Price have been received and
accepted and the Purchase Price for the Buyers whose subscriptions have been
accepted have been received in escrow as provided herein, there may be an
Initial Closing Date followed by one or more Additional Closing Dates, as
provided in Section 6 hereof; and provided, further, that no Closing Date shall
be later than the Latest Closing Date.
"Company Control Person" means each director, executive
officer, promoter, and such other Persons as may be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act
(as defined below).
"Disclosure Annex" means Annex VII to this Agreement;
provided, however, that the Disclosure Annex shall be arranged in sections
corresponding to the identified Sections of this Agreement, but the disclosure
in any such section of the Disclosure Annex shall qualify other provisions in
this Agreement to the extent that it would be readily apparent to an informed
reader from a reading of such section of the Disclosure Annex that it is also
relevant to other provisions of this Agreement.
"Effective Date" has the meaning ascribed to in the
Registration Rights Agreement.
"Escrow Agent" means ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, the escrow agent
identified in the Joint Escrow Instructions attached hereto as Annex II (the
"Joint Escrow Instructions").
"Escrow Funds" means the Purchase Price delivered to the
Escrow Agent as contemplated by Sections 1(c) and (d) hereof.
"Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
"Holder" means the Person holding the relevant Securities at
the relevant time.
"Initial Closing Date" means the Closing Date or, if there is
more than one Closing Date for the transactions contemplated by this Agreement,
the Closing Date for the first of such closings (which shall be for at least the
Minimum Aggregate Purchase Price).
"Last Audited Date" means June 30, 2005.
"Latest Closing Date" means the date which is five Trading
Days after the Initial Closing Date, or February 28, 2006, whichever is earlier.
"Majority in Interest of the Holders" means, as of the
relevant date, one or more Holders whose respective outstanding Note Principals,
as of such date, aggregate more than fifty percent (50%) of the Aggregate Note
Principal on that date.
"Material Adverse Effect" means an event or combination of
events, which individually or in the aggregate, would reasonably be expected to
(x) adversely affect the legality, validity or enforceability of the Purchased
Securities or any of the Transaction Agreements, (y) have or result in a
material adverse effect on the results of operations, assets, or financial
condition of the Company and its subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
material obligations under any of the Transaction Agreements or the transactions
contemplated thereby.
"Maximum Aggregate Purchase Price" means Eight Hundred Twenty
Thousand Dollars ($820,000.00).
"Minimum Aggregate Purchase Price" means Two Hundred Thirty
Thousand Dollars ($230,000.00).
"New Common Stock" means shares of Common Stock and/or
securities convertible into, and/or other rights exercisable for, Common Stock,
which are offered or sold in a New Transaction.
"New Investor" means the third party investor, purchaser or
lender (howsoever denominated) in a New Transaction.
"New Transaction" means
(i) the offer or sale of New Common Stock by or on behalf of the
Company to a New Investor and/or
(ii) the grant of a security interest in or pledge of (x) any or all of
the Company's assets by the Company and/or (y) shares of the Company's
Common Stock or securities convertible into or exercisable for the
Company's Common Stock by any other party in connection with a
transaction in which the Company borrows or is otherwise obligated to
pay funds to a third party,
in a transaction offered or consummated after the date hereof; provided,
however, that it is specifically understood that the term "New Transaction" (1)
includes, but is not limited to, a sale of Common Stock or of a security
convertible into Common Stock or an equity or credit line transaction, but (2)
does not include (a) the issuance of Common Stock upon the exercise or
conversion of options, warrants or convertible securities outstanding on the
date hereof, or in respect of any other financing agreements as in effect on the
date hereof and identified in the Disclosure Annex or the Company SEC Documents
(provided the same is not amended after the date hereof), (b) the issuance of,
or the issuance of Common Stock pursuant to, an Employee Stock Option Plan (an
"ESOP") of the Company, such ESOP having been properly approved by the
shareholders of the Company, (c) the issuance of, or the issuance of Common
Stock pursuant to, a non-employee director or consultants' stock option plan of
the Company, (
d) the issuance of shares to a Strategic Partner, or (e) the consummation of
transactions pursuant to this Agreement and the other Transaction Agreements on
an Additional Closing Date or the issuance of Common Stock pursuant to the terms
thereof.
"Person" means any living person or any entity, such as, but
not necessarily limited to, a corporation, partnership or trust.
"Placement Agent" means vFinance Investments, Inc.
"Principal Trading Market" means the NASDAQ SmallCap Market or
such other market on which the Common Stock is principally traded at the
relevant time, but shall not include the "pink sheets."
"Purchased Securities" means the Note and the Warrant.
"Registrable Securities" shall have the meaning ascribed to it
in the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as Annex V as executed by the Buyer and the
Company simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration
statement covering the Registrable Securities.
"Rule 144" means (i) Rule 144 promulgated under the 1933 Act
or (ii) any other similar rule or regulation of the SEC that may at any time
permit Holder to sell securities of the Company to the public without
registration .
"Securities" means the Note, the Warrant and the Shares.
"Shares" means the shares of Common Stock representing any of
the Warrant Shares and the Payment Shares (as defined in the Registration Rights
Agreement).
"State of Incorporation" means Nevada.
"Strategic Partner" means a third party, whether or not
currently affiliated with the Company, which party (i) is engaged in a business
which is the business in which the Company is engaged or a similar or related
business, and (ii) either (a) subsequently purchases equity securities of the
Company (or securities convertible into equity securities of the Company), or
(b) enters into an agreement for one or more of the following: the licensing by
the Company of all or any portion of its technology to such third party, the
licensing by such third party of all or any portion of its technology to the
Company, or any other coordination of all or a portion of their respective
business activities or operation
s by the Company and such third party.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transfer Agent" means, at any time, the transfer agent for
the Company's Common Stock.
"Transaction Agreements" means this Bridge Loan Agreement, the
Note, the Registration Rights Agreement, the Joint Escrow Instructions, and the
Warrant, and includes all ancillary documents referred to in those agreements.
"Warrant" means the warrant issued to the Buyer as
contemplated by Section 4 of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrant.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price by delivering
immediately available good funds in United States Dollars to the Escrow Agent no
later than the date prior to the Closing Date.
(ii) (A) With respect to Initial Closing Date, the Company
will deliver the relevant Certificates to the Escrow Agent no later than one (1)
Trading Day after the Escrow Agent notifies the Company that the Escrow Agent
has on deposit cleared funds from or on behalf of one or more Buyers an
aggregate amount equal to at least the Minimum Aggregate Purchase Price.
(B) If there is more than one Closing Date, then with
respect to each Closing Date after the
Initial Closing Date, the Company will deliver the relevant Certificates to the
Escrow Agent within one (1) Trading Days after the Escrow Agent notifies the
Company that the Escrow Agent has on deposit cleared funds equal to the Purchase
Price for the relevant Other Buyers; provided, however, that the aggregate
Purchase Price of all Buyers on all Closing Dates shall not exceed the Maximum
Aggregate Purchase Price.
(C) Such Certificates shall be held in escrow as
provided in the Joint Escrow Instructions.
(iii) By signing this Agreement, each of the Buyer 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 ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Account No.: [To be provided to the Buyer by
▇▇▇▇▇▇▇ & Prager LLP]
Re: MSGI 2/06 Bridge Transaction
For: [Name of Buyer]
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, the Buyer is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act 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 to evaluate the merits and risks of an investment in
the Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Securities by the
Buyer shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Securities are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon
the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.
e. The Buyer and its advisors, if any, have been furnished
with or have been given access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Buyer, including those
set forth in any annex attached hereto. The Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and its management
and have received complete and satisfactory answers to any such inquiries.
Without limiting the generality of the foregoing, the Buyer has also had the
opportunity to obtain and to review the Company's filings on ▇▇▇▇▇ listed on
Annex VI hereto (the documents listed on such Annex VI, to the extent available
on ▇▇▇▇▇ or otherwise provided to the Buyer as indicated on said Annex VI,
collectively, the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. If the Buyer is not a United States person (as defined by
Section 7701(a)(30) of the Internal Revenue Code, as currently in effect), such
Buyer hereby represents that it has satisfied itself as to the full observance
of the laws of its jurisdiction in connection with any invitation to subscribe
for the Purchased Securities or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Purchased
Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities. The Buyer's
subscription and payment for and continued beneficial ownership, if any, of the
Securities will not violate any applicable securities or other laws of the
Buyer's jurisdiction.
h. If the Buyer is an individual, then the Buyer resides in
the state or province identified in the address of the Buyer set forth on the
Buyer's signature page to this Agreement. If the Buyer is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Buyer in which its principal place of business is identified in
the address or addresses of the Buyer set forth on the Buyer's signature page to
this Agreement.
i. The Buyer hereby represents that, in connection with the
Buyer's investment or the Buyer's decision to its purchase of the Securities,
the Buyer has not relied on any statement or representation of any Person,
including any such statement or representation by the Company or the Placement
Agent or any of their respective controlling Persons, officers, directors,
partners, agents and employees or any of their respective attorneys, except as
specifically set forth herein. In furtherance of the foregoing, and not in
limitation thereof, the Buyer acknowledges that the Buyer is not relying upon
any Person, other than the Company and its controlling Persons, officers and
directors, as and to the extent specifically set forth herein, in making such
investment. The Buyer agrees that none of (i) any Other Buyer, (ii) any
controlling Persons, officers, directors, partners, agents, or employees of each
respective Other Buyer or (iii) any of their respective attorneys shall be
liable to the Buyer for any action heretofore or hereafter taken or omitted to
be taken by any of them in connection with the purchase of the Purchased
Securities or in connection with the Securities. Each of the Placement Agent,
each Other Buyer and each of their respective controlling Persons, officers,
directors, partners, agents and employees and each of their respective attorneys
is a third party beneficiary of this provision.
j. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
k. This Agreement and the other Transaction Agreements to
which the Buyer is a party, and the transactions contemplated thereby, have been
duly and validly authorized, executed and delivered on behalf of the Buyer and
are valid and binding agreements of the Buyer enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
l. The Buyer understands that if there is more than one
Closing Date, the terms applicable on the Initial Closing Date (such as, but not
necessarily limited to, the Stated Maturity Date and the Note Principal
specified in the Note amount; the Expiration Date and Exercise Price specified
in the Warrant; and the Initial Required Filing Date and Initial Required
Effective Date specified in the Registration Rights Agreement ) will apply to
subsequent closings as well, although certain facts, such as market prices for
the Common Stock may vary from those in effect or applicable to the Initial
Closing Date. This representation applies to Closing Dates for all Other Buyers,
whether such Closing Dates were before or will be after the Buyer's Closing
Date.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer as of the date hereof and as of the relevant Closing Date
that, except as otherwise provided in the Disclosure Annex 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
Note, the Warrant 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 quoted on the Principal Trading Market. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such quotation on the Principal
Trading Market, and the Company has maintained all requirements on its part for
the continuation of such quotation.
c. Authorized Shares.
(i) The authorized capital stock of the Company consists of (x)
9,375,000 shares of Common Stock, $.01 par value per share, of which
approximately 3,831,878 are outstanding as of the date hereof, and (y) 18,750
shares of convertible preferred stock, $.01 par value, of which 9,844.8 shares
of Series F preferred stock are outstanding as of the date hereof.
(ii) There are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future. If any such securities are listed on the Disclosure Annex, the number or
amount of each such outstanding convertible security and the conversion terms
are set forth in said Disclosure Annex.
(iii) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. The Company
has sufficient authorized and unissued shares of Common Stock as would be
necessary to effect the issuance of the Shares on the Closing Date, were the
Warrant fully exercised on that date.
(iv) As of the Initial Closing Date and each Additional Closing Date,
if any, the Shares shall have been duly authorized by all necessary corporate
action on the part of the Company, and, when issued upon exercise of the
Warrant, in accordance with its terms, will have been duly and validly issued,
fully paid and non-assessable and will not subject the Holder thereof to
personal liability by reason of being such Holder.
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 Note,
the Warrant 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 Note, the Warrant 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 whic
h 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 Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. Filings. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Since January 1, 2005, the Company has timely 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 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 owed to the Company
by any third party or claims of the Company against any third party, except in
the ordinary course of business consistent with past practices; (v) waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business; (vi) made any
increases in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
i. Full Disclosure. To the best of the Company's knowledge,
there is no fact known to the Company (other than general economic conditions
known to the public generally or as disclosed in the Company's SEC Documents)
that has not been disclosed in writing to the Buyer that would reasonably be
expected to have or result in a Material Adverse Effect.
j. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company before or by any governmental authority or 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
Section 3(e) hereof, (i) 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 agreement to which it is a party or by which its
property is bound, and (ii) no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company or its subsidiary is a
party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (or its equivalent term) (as so defined
in such agreement), has occurred and is continuing, which would have a Material
Adverse Effect.
l. Absence of Certain Company Control Person Actions or
Events. To the Company's knowledge, none of the following has occurred during
the past five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state insolvency law was
filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such Company Control
Person, or any partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time of
such filing;
(2) Such Company Control Person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:
(i) acting as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, any
other Person regulated by the Commodity Futures Trading Commission
("CFTC") or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days the
right of such Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or
(5) Such Company Control Person was found by a court of competent jurisdiction
in a civil action or by the CFTC or SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by the CFTC or
SEC has not been subsequently reversed, suspended, or vacated.
m. No Undisclosed Liabilities or Events. To the best of the
Company's knowledge, the Company has no liabilities or obligations other than
those disclosed in the Transaction Agreements or the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since the Last
Audited Date, or which individually or in the aggregate, do not or would not
have a Material Adverse Effect. No event or circumstance (or any combination of
one or more thereof) 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 articles or 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.
n. No Integrated Offering. Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since August 1, 2005, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
o. Dilution. The number of shares issuable upon exercise of
the Warrant 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 obligations to issue the Warrant Shares upon exercise of the Warrants
or the issuance of Payment Shares as provided in the Registration Rights
Agreement is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company, and the Company will honor such obligations, including honoring every
Notice of Exercise (as contemplated by the Warrant) and every demand for Payment
Shares (as contemplated by the Registration Rights Agreement), , unless the
Company is subject to an injunction (which injunction was not sought by the
Company) prohibiting the Company from doing so.
p. Fees to Brokers, Finders and Others. Except for payment of
the Placement Agent's Compensation (as defined below) to the Placement Agent and
the payment of any other fees indicated in the Disclosure Annex, 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 commission,
finder's fees or similar payments by Buyer relating to this Agreement or the
transactions contemplated hereby. In furtherance of the foregoing, and not in
limitation thereof, the Company acknowledges that it has agreed to pay the
Placement Agent's Compensation to the Placement Agent in connection with the
transactions contemplated hereby. Buyer shall have no obligation with respect to
such fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this paragraph that may be due in connection
with the transactions contemplated hereby. The Company shall indemnify and hold
harmless each of Buyer, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred. The term "Placement Agent's Compensation" means, in connection with
the consummation of the transactions contemplated by this Agreement, the
consideration contemplated by the Joint Escrow Instructions.
q. Confirmation. The Company confirms that all statements of
the Company contained herein shall survive acceptance of this Agreement by the
Buyer for a period of eighteen (18) months from the latest Closing Date. The
Company agrees that, if any events occur or circumstances exist prior to the
relevant Closing Date or the release of the Purchase Price to the Company which
would make any of the Company's representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Buyer (directly or through
its counsel, if any) and the Escrow Agent in writing prior to such date of such
fact, specifying which representation, warranty or covenant is affected and the
reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such Securities under circumstances in which the
seller, or the Person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that,
until such time as the relevant Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement and sold in accordance with
an effective Registration Statement or otherwise in accordance with another
effective registration statement, the certificates and other instruments
representing any of the Securities shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Filings. The Company undertakes and agrees to make all
filings required to be made by it in connection with the sale of the Securities
to the Buyer under the 1933 Act, the 1934 Act or any United States state
securities laws and regulations thereof applicable to the Company, or by any
domestic securities exchange or trading market, and, unless such filing is
publicly available on the SEC's ▇▇▇▇▇ system (via the SEC's web site at no
additional charge), to provide a copy thereof to the Buyer promptly after such
filing.
d. Reporting Status. So long as the Buyer beneficially owns
any of the Securities and for at least twenty (20) Trading Days thereafter, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act, shall take all reasonable action under its
control to ensure that adequate current public information with respect to the
Company, as required in accordance with Rule 144(c)(2) of the 1933 Act, is
publicly available, and shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company will take all
reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it at least through the date which is sixty (60) days after the
Warrant has been exercised in full or has expired.
e. Use of Proceeds. The Company will use the proceeds received
hereunder (excluding amounts paid as contemplated by the Joint Escrow
Instructions) for general corporate purposes.
f. Warrant. The Company agrees to issue to each Buyer on the
Buyer's Closing Date a transferable warrant (the "Warrant") for the purchase of
the Buyer's Allocable Share of 600,000 shares of Common Stock. The exercise
price of the Warrant will be equal to $6.50, subject to adjustment as provided
in the Warrant and herein. The Warrant shall be exercisable initially on the
Commencement Date specified in the Warrant and shall expire on the last day of
the calendar month in which the fifth anniversary of the Initial Closing Date
occurs. Except as specified above, each Warrant shall generally be in the form
annexed hereto as Annex IV, and shall have the benefit of the Registration
Rights Agreement.
g. Certain Agreements.
(i) The Company covenants and agrees that, for as long as the
Note is outstanding, the Company will not, without the prior written consent of
a Majority in Interest of the Holders in each instance (which consent is in the
sole discretion of the Holders and may be withheld for any reason or for no
reason whatsoever), take any of the following actions or permit any of the
following events to occur:
(x) redeem any shares of the Company's capital stock; or
(y) issue debt securities or otherwise incur indebtedness for borrowed
money, except for th following, each of which is permitted: (1) to a
Strategic Partner (but not any other party) in connection with a
strategic commercial agreement or transaction, as determined in good
faith by the Company's board of directors, (2) pursuant to a commercial
borrowing, lending or lease financing transaction approved in good
faith by the Company's board of directors, (3) pursuant to the
acquisition by the Company of another corporation or other entity,
whether by consolidation, merger or purchase of all or substantially
all
of the assets of, or other reorganization with, that corporation or
entity or (4) the payment in full of the outstanding Notes on the date
of such transaction.
Any breach of this provision shall, at the election of the Holder, be deemed an
Event of Default under the Note.
(ii) Any other provision of this Agreement or any of the other
Transaction Agreements to the contrary notwithstanding, the Company shall not
engage in any offers, sales or other transactions of its securities which would
adversely affect the exemption from registration available for the transactions
contemplated by the Transaction Agreements.
h. Registration Rights; Piggy-Back Rights; Rule 144. Reference
is made to the terms of the Registration Rights Agreement, the terms of which
are incorporated herein by reference.
i. 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 one hundred percent
(100%) of the number of shares which would be issuable upon exercise of the
outstanding Warrants held by all Holders (in each case, whether such Warrant
were originally issued to the Holder, the Buyer or to any other party). For the
purposes of such calculations, the Company should assume that the Warrant were
then exercisable without regard to any restrictions which might limit any
Holder's right to exercise the Warrant held by any Holder.
j. Publicity, Filings, Releases, Etc. Each of the parties
agrees that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases, holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless in the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included. In furtherance of the foregoing, the Company will
provide to the Buyer drafts of the applicable text of the first filing of a
Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
intended to be made with the SEC which refers to the Transaction Agreements or
the transactions contemplated thereby as soon as practicable (but at least two
(2) Trading Days before such filing will be made) and will not include in such
filing any statement or statements or other material to which the other party
reasonably objects, unless in the reasonable opinion of counsel to the party
proposing such statement, such statement is legally required to be included.
Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
as well as any descriptive text accompanying or part of such filing which is
accurate and reasonably determined by the Company's counsel to be legally
required. Notwithstanding, but subject to, the foregoing provisions of this
Section 4(j), the Company will, no later than immediately after the Initial
Closing Date, promptly issue a press release and file a Current Report on Form
8-K or, if appropriate, a quarterly or annual report on the appropriate form,
referring to the transactions contemplated by the Transaction Agreements.
k. Computation of Dates in Transaction Agreements. The Company
and the Buyer agree that, anything herein or in any other Transaction Agreement
to the contrary notwithstanding, all references in this Agreement or in any
other Transaction Agreement to a date determined (howsoever denominated) in
relation to the "Closing Date," shall be deemed to refer to the date so
determined in relation to the Initial Closing Date, even if the Buyer's Closing
Date was subsequent to the Initial Closing Date. In furtherance of the
foregoing, and not in limitation thereof, each Note shall have the Stated
Maturity Date determined based on the Initial Closing Date and each Warrant
shall have an Expiration Date based on the Initial Closing Date.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give the Transfer Agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon exercise of the Warrant or in
connection with the issuance of Payment Shares, as may be applicable from time
to time, in such amounts as specified from time to time by the Company to the
Transfer Agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Buyer or its nominee and in such denominations to be specified
by the Holder in connection with each exercise of the Warrant. Except as so
provided, the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
other Transaction Agreements. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act, 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 Warrant Shares or
the Payment Shares, as may be applicable, promptly instruct the Transfer Agent
to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. Subject to the provisions of this Agreement, the Company
will permit the Buyer to exercise the Warrant in the manner contemplated by the
Warrant.
c. (i) The Company understands that a delay in the issuance of
the Shares of Common Stock beyond the Delivery Date (as defined in the Warrant)
could result in economic loss to the Holder of the Warrant being exercised (an
"Exercising Holder"). As compensation to the Buyer for such loss, the Company
agrees to pay late payments to the Exercising Holder for late issuance of Shares
upon exercise in accordance with the following schedule (where "No. Business
Days Late" refers to the number of Trading Days which is beyond two (2) Trading
Days after the Delivery Date):(1)
Late Payment For Each $10,000
of Exercise Price of Warrant No.
----
Business Days Late Being Exercised
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Late beyond 10
days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Exercising Holder's exclusive remedy (other
than the following provisions of this Section 5(c) and the provisions of Section
8 of the Warrant) for such delay. Furthermore, in addition to any other remedies
which may be available to the Exercising Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock by close
of business on the tenth Trading Day after the Delivery Date, the Exercising
Holder will be entitled to revoke the relevant Notice of Exercise by delivering
a notice to such effect to the Company, whereupon the Company and the Buyer
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Exercise; 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 Exercising
Holder notwithstanding such revocation.
(ii) If, by the close of business of the relevant
Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon exercise of the Warrant and after such
Delivery Date, the Exercising 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
Exercising Holder (the "Sold Shares"), which delivery such Exercising Holder
anticipated to make using the Shares to be issued upon such exercise (a
"Buy-In"), the Exercising Holder shall have the right, in addition to and not in
lieu of all other amounts contemplated in other provisions of the Transaction
Agreements, including, but not limited to, the provisions of the immediately
preceding Section 5(c)(i), the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the number of Sold Shares
multiplied by the excess, if any, of (x) the Exercising Holder's total purchase
price per share (including brokerage commissions, if any) for the Covering
Shares over (y) the net proceeds per share (after brokerage commissions, if any)
received by the Exercising Holder from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to the Exercising Holder in immediately
available funds immediately upon demand by the Exercising Holder. By way of
illustration and not in limitation of the foregoing, if the Exercising 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 Exercising Holder will be $1,000.
d. The provisions of this paragraph apply on or after the
Effective Date. After such Effective Date, the Company will issue Shares without
legend and without transfer restrictions on the books of the Transfer Agent,
and, at the request of the Holder, will use it best efforts to have previously
issued certificates representing the Shares re-issued without legend and without
transfer restrictions on the books of the Transfer Agent. In lieu of delivering
physical certificates representing the Common Stock issuable upon exercise of a
Warrant or at the request of the Holder with respect to any Shares previously
issued, provided the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request of the
Holder and 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 the Transfer Agent to
electronically transmit to the Holder the Common Stock issuable upon exercise of
the Warrant or in replacement of any Shares previously issued by crediting the
account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. In connection therewith, it will be the Holder's obligation
to obtain formal requirements, such as medallion guaranty, if necessary.
e. The Company shall assume any fees or charges of the
Transfer Agent or Company counsel regarding (i) the removal of a legend or stop
transfer instructions with respect to Registrable Securities, and (ii) the
issuance of certificates or DTC registration to or in the name of the Holder or
the Holder's designee or to a transferee as contemplated by an effective
Registration Statement.
f. The Holder of the Warrant shall be entitled to exercise its
exercise privilege with respect to the Warrant notwithstanding the commencement
of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code"). In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to
the fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of such holder's exercise privilege. The Company hereby
waives, to the fullest extent permitted, any rights to relief it may have under
11 U.S.C. ss.362 in respect of the exercise of the Warrant. The Company agrees,
without cost or expense to such Holder, to take or to consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss.362.
g. The Company will authorize the Transfer Agent to give
information relating to the Company directly to the Holder or the Holder's
representatives upon the request of the Holder or any such representative, to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Holder in connection with a Notice of
Exercise, or (ii) the aggregate number of outstanding shares of Common Stock of
all shareholders (as a group, and not individually) as of a current or other
specified date. At the request of the Holder, the Company will provide the
Holder with a copy of the authorization so given to the Transfer Agent.
6. CLOSING DATE.
a. The Initial Closing Date shall occur on the date which is
the first Trading Day after each of the conditions contemplated by Sections 7
and 8 hereof shall have either been satisfied or been waived by the party in
whose favor such conditions run; provided, however, that on the Initial Closing
Date, the aggregate subscriptions shall be for at least the Minimum Aggregate
Purchase Price. If additional subscriptions and the related Purchase Price are
received after the Initial Closing Date, one or more additional Additional
Closing Dates may be held; provided that (i) for all Closing Dates, the
aggregate Purchase Price of all Buyers for all such Closing Dates shall not
exceed the Maximum Aggregate Purchase Price, and (ii) no Closing Date shall be
later than the Latest Closing Date.
b. The closing of the Transactions shall occur on the relevant
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 Buyer.
c. (i) If the Initial Closing Date does not occur by the close
of business on February 21, 2006, then at any time after that date and prior to
the date on which the Initial Closing Date occurs, the Buyer may, by written
notice to the Escrow Agent (a "Cancellation Notice") with a copy to the Company,
request the return by the Escrow Agent to the Buyer of the Purchase Price. Upon
the Escrow Agent's receipt of such Cancellation Notice, if the Initial Closing
Date has not occurred prior to 5 PM (Eastern Time) of the Trading Day following
such receipt by the Escrow Agent, the Buyer shall have no further obligations
under this Agreement, including, without limitation, the obligation to pay any
part of the Purchase Price, and the Escrow Agent shall return the Buyer's Escrow
Funds to the Buyer and the Certificates issued to the Buyer being held as part
of the Escrow Property to the Company.
(ii) If the Escrow Agent receives a Cancellation
Notice from a Buyer, but the Initial Closing Date
occurs prior to 5 PM (Eastern Time) of Trading Day following the Escrow Agent's
receipt of such Cancellation Notice, the Cancellation Notice shall be deemed
null and void ab initio.
(iii) If, as a result of effective Cancellation
Notices received from one or more Buyers (whether
such Buyers constitute all Buyers or less than all Buyers), the Aggregate
Purchase Price of all remaining Buyers is less than the Minimum Aggregate
Purchase Price, then the Initial Closing Date shall not occur until the
subscription of the Buyer and any Other Buyers who have not issued Cancellation
Notices are for at least the Minimum Aggregate Purchase Price. If, as of the
Latest Closing Date, the Initial Closing Date has not occurred, this Agreement
shall be deemed canceled with respect to all Buyers as if each of them had
timely given a Cancellation Notice.
d. 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 relevant 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 Buyer understands that the Company's obligation to sell
the relevant Note and the Warrant to the Buyer pursuant to this Agreement on the
relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer
on or before the Buyer's Closing Date;
b. Delivery by the Buyer by the Buyer's Closing Date to the
Escrow Agent of good funds as payment in full of an amount equal to the Purchase
Price in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the relevant Note and the Warrant on the relevant Closing Date is
conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before the Buyer's Closing Date;
b. Delivery by the Company to the Escrow Agent of the
Certificates in accordance with this Agreement;
c. 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; and with respect to each Additional Closing
Date, (x) there shall have been no Material Adverse Effect from the Initial
Closing Date through and including the Additional Closing Date and (y) an
executive officer of the Company shall issue an Officer's Certificate
substantially in the form of Annex VIII hereto with respect thereto; provided,
however, that such Officer's Certificate may update certain information, such as
the number of shares of the Company's stock outstanding, included in Section 3);
d. On the Initial Closing Date, the Buyer shall have received
an opinion of counsel for the Company, dated such Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer, substantially to the effect
set forth in Annex III attached hereto; and on any Additional Closing Date, the
Buyer purchasing a Note and Warrant on such Closing Date shall have received
such an opinion or a statement from counsel to the Company that such Buyer may
rely on an opinion previously issued to Other Buyers;
e. 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
f. From and after the date hereof to and including such
Closing Date, each of the following conditions will remain in effect: (i) the
trading of the Common Stock shall not have been suspended by the SEC or on the
Principal Trading Market; (ii) trading in securities generally on the Principal
Trading Market shall not have been suspended or limited; (iii) no minimum prices
shall been established for securities traded on the Principal Trading Market;
and (iv) there shall not have been any material adverse change in any financial
market.
9. INDEMNIFICATION AND REIMBURSEMENT.
a. (i) The Company agrees to indemnify and hold harmless the
Buyer and its officers, directors, employees, and agents, and each Buyer Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, "Damages"), joint or several, and any action in respect
thereof to which the Buyer, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Buyer Control Person becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, except to the extent such Damages result primarily from Buyer's
failure to perform any covenant or agreement contained in this Agreement or the
Buyer's or its officer's, director's, employee's, agent's or Buyer Control
Person's illegal or willful misconduct, gross negligence, recklessness or bad
faith (in each case, as determined by a non-appealable judgment to such effect)
in performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Buyer,
other than by reason of its gross negligence,
illegal or willful misconduct (in each case, as determined by a non-appealable
judgment to such effect), (x) becomes involved in any capacity in any action,
proceeding or investigation brought by any shareholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements, or if the
Buyer is impleaded in any such action, proceeding or investigation by any
Person, or (y) becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC, any self-regulatory organization or other body
having jurisdiction, against or involving the Company or in connection with or
as a result of the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements, or (z) is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company shall indemnify, defend and hold harmless the Buyer from and against and
in respect of all losses, claims, liabilities, damages or expenses resulting
from, imposed upon or incurred by the Buyer, directly or indirectly, and
reimburse such Buyer for its reasonable legal and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith, as
such expenses are incurred. The indemnification and reimbursement obligations of
the Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Buyer who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and Buyer Control
Persons (if any), as the case may be, of the Buyer and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the Buyer, any such Affiliate and
any such Person. The Company also agrees that neither the Buyer nor any such
Affiliate, partner, director, agent, employee or Buyer Control Person shall have
any liability to the Company or any Person asserting claims on behalf of or in
right of the Company in connection with or as a result of the consummation of
this Agreement or the other Transaction Agreements, except as may be expressly
and specifically provided in or contemplated by this Agreement.
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of
which any Person claiming indemnification under
any provision of this Section (an "Indemnified Party") might seek indemnity
under paragraph (a) of this Section is asserted against or sought to be
collected from such Indemnified Party by a Person other than a party hereto or
an Affiliate thereof (a "Third Party Claim"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of this Section against any Person (the "Indemnifying Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim Notice")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under this
Section and whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim. The
following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this paragraph (b) of this Section, then the Indemnifying Party shall
have the right to defend, with counsel reasonably satisfactory to the
Indemnified Party, at the sole cost and expense of the Indemnifying
Party, such Third Party Claim by all appropriate proceedings, which
proceedings shall be vigorously and diligently prosecuted by the
Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any
relief other than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified Party shall
not be indemnified in full pursuant to paragraph (a) of this Section).
The Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof; provided,
however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this
subparagraph (x), file any motion, answer or other pleadings or take
any other action that the Indemnified Party reasonably believes to be
necessary or appropriate protect its interests; and provided further,
that if requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any
Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this subparagraph (x), and except as provided in the
preceding sentence, the Indemnified Party shall bear its own costs and
expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under paragraph (a) of this
Section with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to paragraph (b) of this Section, or if
the Indemnifying Party gives such notice but fails to prosecute
vigorously and diligently or settle the Third Party Claim, 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 Clai
m by all appropriate proceedings, which proceedings shall be prosecuted
by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the
consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of
such defense and proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the Indemnified Party,
the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the
Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in subparagraph(z) below, the
Indemnifying Party will not be required to bear the costs and expenses
of the Indemnified Party's defense pursuant to this subparagraph (y) or
of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation.
The Indemnifying Party may participate in, but not control, any defense
or settlement controlled by the Indemnified Party pursuant to this
subparagraph (y), and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under paragraph
(a) of this Section or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability or
the amount of its liability to the Indemnified Party with respect to
such Third Party Claim, the amount of Damages specified in the Claim
Notice shall be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute; provided, however,
that if the dispute is not resolved within thirty (30) days after the
Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(ii) In the event any Indemnified Party should have a
claim under paragraph (a) of this Section
against the Indemnifying Party that does not involve a Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for indemnity
under paragraph (a) of this Section specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably ascertainable, the
estimated amount, determined in good faith, of such claim (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the In
demnity Notice shall not impair such party's rights hereunder except to the
extent that the Indemnifying Party demonstrates that it has been irreparably
prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the claim or the amount of the claim described in such
Indemnity Notice or fails to notify the Indemnified Party within the Dispute
Period whether the Indemnifying Party disputes the claim or the amount of the
claim described in such Indemnity Notice, the amount of Damages specified in the
Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that it the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
c. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to.
10. JURY TRIAL WAIVER. The Company and the Buyer hereby waive
a trial by jury in any action, proceeding or counterclaim brought by either of
the Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
a. (i) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware 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 Wilmington or the state courts of the State of Delaware sitting in the
City of Wilmington in connection with any dispute arising under this Agreement
or any of the other Transaction Agreements and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions or
to any claim that such venue of the suit, action or proceeding is improper. To
the extent determined by such court, the Company shall reimburse the Buyer for
any reasonable legal fees and disbursements incurred by the Buyer in enforcement
of or protection of any of its rights under any of the Transaction Agreements.
Nothing in this Section shall affect or limit any right to serve process in any
other manner permitted by law.
(ii) The Company and the Buyer acknowledge and agree
that irreparable damage would occur in the event
that any of the provisions of this Agreement or the other Transaction Agreements
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and the other Transaction Agreements and to enforce specifically the
terms and provisions hereof and thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
k. All dollar amounts referred to or contemplated by this
Agreement or any other Transaction Agreement shall be deemed to refer to US
Dollars, unless otherwise explicitly stated to the contrary.
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 fifth Trading Day after deposit, postage
prepaid, in the United States Postal Service by registered or
certified mail, or
(c) the third Trading Day after mailing by domestic
or international express courier, with delivery costs and fees
prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: At the address set forth at the head of this Agreement.
Attn: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
MetLife Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
LENDER: At the address set forth on the signature page of this Agreement.
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, Esqs.
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
ESCROW AGENT: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, Esqs.
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Buyer's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Certificates
and the payment of the Purchase Price, and shall inure to the benefit of the
Buyer and the Company and their respective successors and assigns.
[Balance of page intentionally left blank]
IN WITNESS WHEREOF, with respect to the Purchase Price specified below,
this Agreement has been duly executed by the Buyer and the Company as of the
date set first above written.
PURCHASE PRICE: $_______________
BUYER:
Notice Address:
-------------------------------- ------------------------------------
Address Printed Name of Buyer
--------------------------------
By: _______________________
Telecopier No. _________________ (Signature of Authorized Person)
---------------------------
______________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
If the above Notice Address is not the Residence (for individual Buyer) or
Principal Place of Business (for Buyer which is not an individual), such
Residence or Principal Place of Business is:
-----------------------------
-----------------------------
-----------------------------
COMPANY
MSGI SECURITY SOLUTIONS, INC.
By: _________________________________
(Signature of Authorized Person)
-------------------------------------
Printed Name and Title
ANNEX I FORM OF NOTE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL OF COMPANY
ANNEX IV FORM OF WARRANT
ANNEX V REGISTRATION RIGHTS AGREEMENT
ANNEX VI COMPANY'S SEC DOCUMENTS AVAILABLE ON ▇▇▇▇▇
ANNEX VII COMPANY DISCLOSURE
ANNEX VIII OFFICER'S CERTIFICATE
(1) Example: Notice of Exercise is delivered on Monday, May 1, 2006. The
Delivery Date would be Thursday, May 4 (the third Trading Day after such
delivery). If the certificate is delivered by Monday, May 8 (2 Trading Days
after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on May 9, that is 1 "Business Day Late" in the table
below; if delivered on May 16, that is 6 "Business Days Late" in the table.