EXHIBIT 10.20
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SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
among
CUMETRIX DATA SYSTEMS CORP.
and
The Persons Listed On The Signature Pages Hereto
Dated as of September 29, 2000
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This Series 1 Bridge Notes Purchase And Security Agreement provides for the
offer, sale, issuance, and delivery of up to $1,500,000 in principal amount of
Secured Convertible Series 1 Bridge Financing Notes with attached Repricing
Warrants and accompanying Purchaser Warrants.
TABLE OF CONTENTS
SECTION 1. Bridge Notes............................................................. 2
Section 1.1 Authorization, Issuance, and Sale of Notes......................... 2
Section 1.2 Authorization and Issuance of Warrants............................. 2
Section 1.3 Form of Payment.................................................... 2
Section 1.4 Closing............................................................ 2
Section 1.5 Deliveries at Closing.............................................. 2
SECTION 2. SECURITY AGREEMENT....................................................... 3
Section 2.1 Grant of Security Interest......................................... 3
Section 2.2 Remedies Upon Default.............................................. 4
Section 2.3 Financing Statements............................................... 4
Section 2.4 Notice............................................................. 5
Section 2.5 Appointment of Purchaser Representative............................ 5
Section 2.6 Assurances......................................................... 5
Section 2.7 Default and Acceleration Procedures................................ 6
Section 2.8 Standard of Care of the Representative............................. 7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 9
Section 3.1 Organization and Qualification..................................... 9
Section 3.2 Authorization, Enforcement, Compliance with Other Instruments...... 9
Section 3.3 Capitalization..................................................... 10
Section 3.4 Issuance of Securities............................................. 10
Section 3.5 No Conflicts....................................................... 10
Section 3.6 SEC Documents; Financial Statements............................... 11
Section 3.7 Absence of Certain Changes......................................... 12
Section 3.8 Absence of Litigation.............................................. 12
Section 3.9 Purchase of Securities............................................. 12
Section 3.10 No Undisclosed Events, Liabilities, Developments, or Circumstances. 12
Section 3.11 No General Solicitation............................................ 12
Section 3.12 No Integrated Offering............................................. 12
Section 3.13 Employee Relations................................................. 13
Section 3.14 Intellectual Property Rights....................................... 13
Section 3.15 Environmental Laws................................................. 13
Section 3.16 Title.............................................................. 13
Section 3.17 Insurance.......................................................... 14
Section 3.18 Regulatory Permits................................................. 14
Section 3.19 Internal Accounting Controls....................................... 14
Section 3.20 No Materially Adverse Contracts, Etc............................... 14
Section 3.21 Tax Status......................................................... 14
Section 3.22 Certain Transactions............................................... 15
Section 3.23 Dilutive Effect.................................................... 15
Section 3.24 Application of Takeover Protections................................ 15
Section 3.25 Fees and Rights of First Refusal................................... 15
Section 3.26 Foreign Corrupt Practices Act...................................... 15
Section 3.27 Disclosure......................................................... 15
SECTION 4. REPRESENTATION AND WARRANTIES OF PURCHASERS.............................. 16
Section 4.1 Investment Purpose................................................. 16
Section 4.2 Accredited Investor Status......................................... 16
Section 4.3 Reliance on Exemptions............................................. 16
Section 4.4 Information........................................................ 16
Section 4.5 No Governmental Review............................................. 16
Section 4.6 Transfer or Resale................................................. 16
Section 4.7 Legends............................................................ 17
Section 4.8 Authorization Enforcement.......................................... 17
Section 4.9 Residence.......................................................... 17
Section 4.10 No Scheme to Evade Registration.................................... 17
Section 4.11 Covenant Not to Trade.............................................. 18
SECTION 5. CONDITIONS TO EACH CLOSING............................................... 18
Section 5.1 Transaction Agreements............................................. 18
Section 5.2 Opinion of Counsel. The........................................... 19
Section 5.3 Representations and Warranties; No Default......................... 19
Section 5.4 Purchase and Loan Permitted by Applicable Laws..................... 19
Section 5.5 No Adverse Litigation.............................................. 19
Section 5.6 Approvals and Consents............................................. 19
Section 5.7 No Material Adverse Change......................................... 19
Section 5.8 Proceedings........................................................ 19
Section 5.9 Secretary Certificate.............................................. 20
Section 5.10 Transfer Agent Instructions........................................ 20
Section 5.11 Lien Search........................................................ 20
Section 5.13 No Suspensions..................................................... 20
Section 5.14 Stockholder Approval............................................... 20
SECTION 6. AFFIRMATIVE COVENANTS.................................................... 20
Section 6.1 Financial Information.............................................. 21
Section 6.2 Form D; Form 8-K................................................... 21
Section 6.3 Reporting Status................................................... 22
Section 6.4 Inspection of Property............................................. 22
Section 6.5 Maintenance of Properties; Insurance............................... 22
Section 6.6 Maintenance of Security Interest................................... 22
Section 6.7 Expenses........................................................... 22
Section 6.8 Authorized Shares of Common Stock, Reservation of Shares........... 23
Section 6.9 Corporate Existence, Etc........................................... 23
Section 6.10 Transfer Agents.................................................... 23
Section 6.11 Stockholder Approval; Proxy........................................ 23
Section 6.12 Transfer Agent Instructions........................................ 23
Section 6.13 Payment of Taxes................................................... 24
Section 6.14 Compliance with Laws, Etc.......................................... 24
Section 6.15 Use of Proceeds.................................................... 24
Section 6.16 Registration Statement............................................. 24
Section 6.17 Listings........................................................... 24
Section 6.18 Indemnification.................................................... 24
Section 6.19 Best Efforts....................................................... 25
Section 6.20 Right of First Refusal............................................. 25
SECTION 7. NEGATIVE COVENANTS....................................................... 26
Section 7.1 Definition of Debt................................................. 26
Section 7.2 Restrictions on Dividends.......................................... 26
Section 7.3 Restrictions on Transactions with Affiliates....................... 27
Section 7.4 Exceptions With Consent of the Purchasers.......................... 27
SECTION 8. Miscellaneous............................................................ 27
Section 8.1 Restrictions on Conversion and Exercise............................ 27
Section 8.2 Counterparts....................................................... 28
Section 8.3 Headings........................................................... 28
Section 8.4 Severability....................................................... 28
Section 8.5 Entire Agreement. Amendments....................................... 28
Section 8.6 Notices............................................................ 28
Section 8.7 Interest........................................................... 29
Section 8.8 Successors and Assigns............................................. 29
Section 8.9 No Third Party Beneficiaries....................................... 29
Section 8.10 Survival........................................................... 29
Section 8.11 Publicity.......................................................... 29
Section 8.12 Further Assurances................................................. 30
Section 8.13 No Strict Construction............................................. 30
Section 8.14 Governing Law...................................................... 30
TABLE OF SCHEDULES AND EXHIBITS
Schedule 1 Disclosure Schedule
Exhibit A Form of Series 1 Bridge Notes (with form of Repricing
Warrant attached as Attachment 1)
Exhibit B Form of Purchaser Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Form of Pledge Agreement
Exhibit F Intentionally Omitted
Exhibit G Form of Opinion of Company Counsel to Purchasers
Exhibit H Form of Irrevocable Transfer Agent Instructions
Exhibit I Intentionally Omitted
Exhibit J Intentionally Omitted
CROSS-REFERENCE TO DEFINED TERMS
Term Page where defined
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1933 Act........................................ 1
1934 Act........................................ 11
Additional Closing.............................. 2
Additional Closing Date......................... 2
Affiliate....................................... 27
Agreement....................................... 1
Bridge Notes.................................... 1
Bylaws.......................................... 10
Change in Business.............................. 28
Charter......................................... 10
Closing......................................... 2
Closing Date.................................... 2
Collateral...................................... 4
Common Stock.................................... 1
Company......................................... 1
Compliance Certificate.......................... 3
Consents........................................ 19
Control......................................... 27
Conversion Shares............................... 1
Debt............................................ 26
Disclosure Schedule............................. 9
Environmental Laws.............................. 13
Escrow Agent.................................... 2
Escrow Agreement................................ 3
Excess Cash..................................... 28
Financial Statements............................ 11
First Closing................................... 2
First Closing Date.............................. 2
Indemnified Liabilities......................... 24
Indemnitees..................................... 24
Material Adverse Effect......................... 9
Minimum Amount.................................. 2
NASD............................................ 23
Obligations..................................... 3
OTCBB........................................... 20
Pledged Assets.................................. 3
Pledged Shares.................................. 3
Private Securities.............................. 25
Proportionate Share............................. 7
Purchase Price.................................. 2
Purchased Bridge Notes.......................... 2
Purchaser....................................... 1
Registration Period............................. 22
Registration Rights Agreement................... 1
Regulation D.................................... 1
Related Party................................... 27
Representative.................................. 5
Repricing Shares................................ 1
Repricing Warrant............................... 1
Right of Refusal Offer Period................... 25
Rule 144........................................ 17
SEC Documents................................... 11
Secretary Certificate........................... 3
Securities...................................... 9
Stock Pledge Agreement.......................... 3
Transaction Agreements.......................... 9
Transfer Agent Instructions..................... 3
UCC............................................. 3
Warrant Shares.................................. 1
Warrants........................................ 1
SERIES 1 BRIDGE NOTES PURCHASE AND SECURITY AGREEMENT
THIS SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT (the "Agreement")
is made and entered into as of this 29 day of September, 2000, among CUMETRIX
DATA SYSTEMS CORP., a California corporation (the "Company") and the persons
listed on the Purchaser signature pages attached hereto (each of whom is
individually referred to as a "Purchaser" and all of whom collectively are
referred to as the "Purchasers").
Background
The Company has authorized the issuance, sale, and delivery of up to
$1,500,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes, in substantially the form attached hereto as
Exhibit A (the "Bridge Notes"). The Bridge Notes are convertible into shares of
the Company's common stock, without par value (the "Common Stock"). The Common
Stock issuable upon conversion of the Bridge Notes is hereinafter referred to as
the "Conversion Shares". The Bridge Notes have attached repricing rights
evidenced by a warrant in substantially the form of Attachment 1 to the Bridge
Notes (the "Repricing Warrant"), exercisable under certain circumstances for
additional shares of Common Stock (the "Repricing Shares") at the exercise price
of $.001. In connection with the issuance of the Bridge Notes, the Company has
authorized the issuance of Purchase Warrants, in substantially the form attached
hereto as Exhibit B (the "Warrants") giving a Purchaser the right to purchase
Common Stock. Each Purchaser will be issued a Warrant at the Closing
exercisable for 10,000 shares of Common Stock for each $100,000 in principal
amount of Bridge Notes purchased. The shares of Common Stock issuable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares."
The proceeds of the Bridge Notes will be used to provide the Company with
operating capital. The Bridge Notes are secured by a pledge of newly issued
shares of Common Stock having a value of approximately 200% of the principal
amount of the Bridge Notes at any time outstanding. The Purchasers wish to
purchase, upon the terms and conditions stated in this Agreement, up to
$1,500,000 in principal amount of the Bridge Notes, with each Purchaser
purchasing Bridge Notes in the principal amount set forth on such Purchaser's
signature page affixed to this Agreement. Contemporaneously with the execution
and delivery of this Agreement, the parties hereto are executing and delivering
a Registration Rights Agreement in substantially the form attached hereto as
Exhibit C (the "Registration Rights Agreement") pursuant to which the Company
has agreed to provide certain registration rights in respect of the Conversion
Shares, the Warrant Shares, and the Repricing Shares under the Securities Act of
1933 ("1933 Act") and the rules and regulations promulgated thereunder, and
applicable state securities laws. The Company and the Purchasers are executing
and delivering this Agreement in reliance upon the exemption from securities
registration pursuant to Section 4(2) and Regulation D ("Regulation D").
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Purchaser hereby agree as
follows:
SECTION 1. Bridge Notes.
Section 1.1 Authorization, Issuance, and Sale of Notes. The Company has
authorized the sale and issuance, in accordance with the terms of this
Agreement, of up to $1,500,000 in original principal amount of its Bridge Notes
at one or more closings. The Company agrees to issue and sell to each Purchaser
and each Purchaser agrees to purchase from the Company, at a Closing, a Bridge
Note in the principal amount (the "Purchased Bridge Notes") set forth adjacent
to the caption "Purchased Bridge Notes" on the signature page to this Agreement
of each Purchaser hereto at a purchase price (the "Purchase Price") of 100% of
the principal amount of Bridge Notes purchased.
Section 1.2 Authorization and Issuance of Warrants. The Company has
authorized the issuance and delivery of Warrants exercisable for up to 150,000
shares of Common Stock in connection with the issuance, sale, and delivery of
the Bridge Notes. The Company agrees to issue and deliver to each Purchaser a
Warrant exercisable for 10,000 shares of Common Stock for each $100,000 in
principal amount of the Bridge Notes purchased by such Purchaser.
Section 1.3 Form of Payment. On or before the Closing Date, each Purchaser
shall pay the Purchase Price for the Purchased Bridge Notes to be issued and
sold to such Purchaser at the Closing, by wire transfer of immediately available
funds to such account as may be designated in writing to the Purchasers at least
two (2) business days prior to the Closing Date.
Section 1.4 Closing. All closings of the purchase and sale of the
Purchased Bridge Notes shall take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ & Kuh LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, within five
(5) business days following the date that $500,000 (the "Minimum Amount") is
held by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ & Kuh LLP (the "Escrow Agent"),
subject to notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Section 5 below (such closing being called the "First
Closing" and such date and time being called the "First Closing Date"). The
Purchasers understand and agree that the Company may from time to time, offer
and sell additional Bridge Notes until the offering of the Bridge Notes is
terminated or all $1,500,000 in principal amount is purchased. Such additional
closings may occur at such time and date as is mutually agreeable between the
Purchasers purchasing Bridge Notes at such closing and the Company (each such
closing being called an "Additional Closing" and such date and time being called
an "Additional Closing Date," and all of such closings are hereinafter referred
to individually as a "Closing" and collectively as the "Closings," and each date
on which a Closing shall occur is hereinafter referred to as a "Closing Date"
and collectively as the "Closing Dates"). Upon execution of a purchase agreement
in form substantially similar to this Purchase Agreement and a joinder agreement
in form and substance reasonably acceptable to the Company, each Purchaser at an
Additional Closing shall become parties to, and shall be entitled to the
benefits of, and be fully bound by and subject to, all of the agreements,
covenants, terms and conditions of the Registration Rights Agreement, Guaranty
Agreement, and Pledge Agreement as if they had been an original party thereto;
provided, however, that without the consent of all the holders of outstanding
Bridge Notes, the aggregate principal amount of Bridge Notes issued by the
Company shall not exceed $1,500,000. Each Closing is expected to take place by
exchange of faxed signature pages with originals to follow by overnight
delivery.
Section 1.5 Deliveries at Closing. At each Closing, the Company shall
deliver to the Purchasers:
(a) the original of this Agreement;
(b) Bridge Notes in definitive form with attached Repricing Warrants,
registered in the name of each Purchaser, or the designee of such
Purchaser, representing the Purchased Bridge Notes purchased by such
Purchaser;
(c) Warrants in definitive form, registered in the name of each
Purchaser, or the designee of such Purchaser;
(d) a copy of the Registration Rights Agreement;
(e) a copy of the Escrow Agreement in substantially the form of
Exhibit D hereto (the "Escrow Agreement");
(f) a copy of the Stock Pledge Agreement executed by the Company as
pledgor of certain shares of Common Stock in substantially the form of
exhibit F hereto ((the "Stock Pledge Agreement" and the shares pledged
hereinafter referred to as the "Pledged Shares"), along with share
certificates representing the Pledged Shares;
(g) a copy of the opinion of counsel to the Company, in substantially
the form of Exhibit G hereto;
(h) a copy of the Irrevocable Transfer Agent Instructions, in
substantially the form of Exhibit H hereto, (the "Transfer Agent
Instructions");
(i) the Compliance Certificate of the Company (the "Compliance
Certificate"); and
(j) the Secretary Certificate of the Company (the "Secretary
Certificate").
SECTION 2. SECURITY AGREEMENT.
The provisions of this Section 2 shall remain in effect so long as any of
the Bridge Notes shall remain outstanding.
Section 2.1 Grant of Security Interest. In order to secure the obligations
(such obligations are sometimes hereinafter referred to as the "Obligations") of
the Company due to the Purchasers, which for purposes of this Section 2 shall
include any Purchasers of Bridge Notes purchased at an Additional Closing, under
the Bridge Notes, in addition to the general credit of the Company and the
Pledged Shares, the Company hereby grants to the Purchasers and the
Representative (for and on behalf of the Purchasers), effective at the First
Closing, a continuing first priority security interest in and a general lien
upon:
(a) the assets, if any, of the Company listed and described on
Exhibit I hereto (the "Pledged Assets"); and
(b) all proceeds, as such term is defined in Section 9-306(1) of the
Uniform Commercial Code as in effect in the State of New York on the date
hereof (the "UCC")and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty, or guaranty
payable to the Company from time to time with respect to any of the Pledged
Assets, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Company from time to time in connection with any
requisitions, confiscation, condemnation,
seizure, or forfeiture of all or any part of the Pledged Assets by any
governmental authority (or any person acting under color of governmental
authority), and (iii) any and all other amounts from time to time paid or
payable under or in connection with any of the Pledged Assets
(collectively, the "Collateral").
Section 2.2 Remedies Upon Default. Upon the occurrence or existence of an
Event of Default (as defined in Section 10 of the Bridge Notes), the
Representative (on behalf of each Purchaser) shall have the right to pursue all
available remedies at law or in equity, including without limitation:
(a) all of the rights and remedies available to a secured party under
the UCC, and any other applicable law, all of which shall be cumulative and
none of which shall be exclusive, to the fullest extent permitted by law,
and all other legal and equitable rights under this Agreement and the
Transaction Agreements which may be available to the Representative, all of
which shall be cumulative;
(b) the right to take possession of the Collateral upon reasonable
notice and to enter the offices of the Company during normal business hours
to take possession of the Collateral; the right of the Purchaser to (a)
enter upon the premises of Company or any of its subsidiaries, or any other
place or places where the Collateral is located and kept, through self-help
and without judicial process, without first obtaining a final judgment or
giving Company or any of its subsidiaries notice and opportunity for a
hearing on the validity of the Representative's claim and without any
obligation to pay rent to Company or any of its subsidiaries, and remove
the Collateral therefrom to the premises of Representative or any agent of
Representative, for such time as Representative may desire, in order to
effectively collect or liquidate the Collateral; and/or (b) require Company
to assemble the Collateral and make it available to Representative at a
place to be designated by the Representative, in their sole discretion.
(c) the right to sell or otherwise dispose of all or any part of the
Collateral in its then condition, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as such Representative may deem advisable, and purchase all or
any part of the Collateral at public or, if permitted by law, private sale
and, in lieu of actual payment of such purchase price, may set off the
amount of such price against the Obligations, and to apply the proceeds
realized from such sale, after allowing two (2) business days for
collection, first to the reasonable costs, expenses, and attorneys' fees
and expenses incurred by such Representative for collection and for
acquisition, storage, sale, and delivery of the Collateral, secondly to
interest due upon the Obligations, and thirdly to the principal of the
Obligations; and
(d) the right to proceed by an action or actions at law or in equity
to obtain possession of the Collateral, to recover the Obligations and
amounts secured hereunder or to foreclose under this Agreement and sell the
Collateral or any portion thereof, pursuant to a judgment or decree of a
court or courts of competent jurisdiction, all without the necessity of
posting any bond.
Section 2.3 Financing Statements. The Company and the Representative (on
behalf of each Purchaser) agree to file or cause to be filed on or before the
First Closing UCC financing statements in such jurisdictions (including the
State of California) evidencing the security interests granted herein, copies of
which are attached hereto as Exhibit J. The Representative is authorized, to the
extent permitted by law, to file any such financing statements without the
signature of the Company.
Section 2.4 Notice. Any notice required to be given by Representative of a
sale, lease, or other disposition of the Collateral or any other intended action
by Representative, given to Company in the manner set forth in Section 8.6
below, at least ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to Company.
Section 2.5 Appointment of Purchaser Representative. Each Purchaser hereto
hereby irrevocably appoints SovCap Equity Partners, Ltd., a corporation
organized under the laws of the Bahamas and a First Closing Purchaser hereunder,
to act as the sole and exclusive agent and representative (the "Representative")
of each such Purchaser to act on behalf of such Purchaser and in such
Purchaser's name, place, and stead, to (i) exercise all rights of such
Purchaser, and (ii) take all action on behalf of the Purchaser that may be taken
by the Purchaser with respect to the Collateral, under this Agreement, the
Bridge Notes, and the other Transaction Agreements. Without limiting the
generality of the foregoing:
(a) The Representative shall have the power, on behalf of all
Purchasers, to send all notices which shall or may be given by the
Purchasers, under the Transaction Agreements, declare Events of Default
under this Agreement, the Bridge Notes, and the other Transaction
Agreements, accelerate the Bridge Notes, rescind acceleration of the Bridge
Notes, and enforce the Bridge Notes, this Agreement, and the other
Transaction Agreements. The Representative reserves the right, in its sole
discretion, in each instance without prior notice to the Purchasers, (i) to
agree to the modification, waiver, or release of any of the terms of any of
the Transaction Agreements, including, without limitation, the waiver or
release of any of the conditions precedent for the purchase and sale of the
Bridge Notes; (ii) to consent to any action or failure to act by the
Company; and (iii) to exercise or refrain from exercising any powers,
rights, or remedies that the Purchasers have or may have with respect to
Collateral under the Transaction Agreements; provided, however, that the
Representative shall not, without obtaining the prior written consent of
each Purchaser (which consent shall not be unreasonably withheld,
conditioned or delayed), exercise any of such rights so as to knowingly
release or waive any claim against the Company or any other person who may
be liable with respect to the Bridge Notes if such action would have a
materially adverse effect on the collection of the indebtedness evidenced
by the Bridge Notes or the enforcement of the Transaction Agreements.
If any Purchaser shall refuse to consent to any amendment,
modification, waiver, release, or subordination requiring the written
consent of the Purchasers, the Purchasers who consent to such amendment,
modification, waiver, release, or subordination may, at their option, at
any time thereafter (but shall not be obligated to) purchase the Bridge
Note or Bridge Notes held by the non-consenting Purchaser or Purchasers by
paying to such non-consenting Purchaser or Purchasers an amount equal to
the unpaid principal and accrued but unpaid interest on the Bridge Note
held by such non-consenting Purchaser or Purchasers.
(b) The Representative shall have the power to collect, enforce, and
bring any action on the Transaction Agreements and any Collateral granted
therein in the name of the Representative for the benefit of all
Purchasers.
Section 2.6 Assurances.
(a) Each Purchaser hereby authorizes third parties with whom
Representative deals in carrying out the responsibilities of Representative
hereunder, to rely conclusively on the instructions and decisions of the
Representative as to any action taken pursuant to and in accordance with the
terms of
this Agreement and the other Transaction Agreements without any further or
additional approval or authorization from such Purchaser, including without
limitation, the execution and delivery of any documents or instruments, or any
other actions required to be taken by the Representative under this Agreement
and the other Transaction Agreements, and no Purchaser shall have any cause of
action against third parties with whom Representative deals in carrying out the
responsibilities of Representative hereunder or under the other Transaction
Agreements for any action taken by such third parties in reliance upon the
instructions or decisions of the Representative.
(b) All actions, decisions, and instructions of the Representative shall
be conclusive and binding upon all of the Purchasers, and no Purchaser shall
have any cause of action against the Representative for any actions taken,
decision made or instruction given by the Representative under this Agreement,
except as provided in Section 2.8(a).
Section 2.7 Default and Acceleration Procedures.
(a) Each Purchaser acknowledges and agrees that its respective rights in,
to, and under the Collateral are limited to its Proportionate Share of the
Collateral securing all the Bridge Notes, whether Such Bridge Notes are issued
at the Initial Closing or an Additional Closing.
(b) The Representative shall give all Purchasers written notice of any
Event of Default under the Bridge Notes, this Agreement, or the other
Transaction Agreements known to it which, in the sole judgment of the
Representative, materially adversely affects the respective interests of the
Purchasers under any of the Transaction Agreements. In the event of any Event
of Default thereunder, the Representative shall pursue any remedies available to
the Purchasers under the Transaction Agreements which the Representative in its
sole discretion shall deem advisable, and Representative may also elect to
postpone the pursuit of remedies if in its sole discretion and judgment it is
appropriate under the circumstances to do so.
(c) In the event proceedings are instituted for a sale under power of sale
or a judicial foreclosure of the Collateral provided under the Transaction
Agreements, the provisions of the UCC, absent written agreement to the contrary,
shall govern such proceedings and the actions taken pursuant thereto, as among
the Representative and the Purchasers.
(d) In the event the Representative acquires title to any of the
Collateral provided under the Transaction Agreements pursuant to a foreclosure
or conveyance in lieu of foreclosure, title shall be taken in a form acceptable
to the Representative and shall be held by or on behalf of the Representative
for the benefit of the Purchasers in their Proportionate Share. The
Representative shall manage such Collateral in its ordinary course of business
and in accordance with its customary practices and procedures for as long as
such title is held in whole or in part in the name of or on behalf of the
Representative. The Representative shall have the authority to contemporaneously
to sell such Collateral on terms and conditions reasonably acceptable to the
Representative.
(e) If the Representative receives a payment after acceleration of the
Bridge Notes, whether pursuant to a demand for payment or as a result of legal
proceedings against the Company, or from any source whatsoever, such payment
shall be applied in the following order (unless mandated otherwise by the
Transaction Agreements):
(1) To the reasonable expenses incurred in effecting such recovery or
in enforcing any right or remedy under the Transaction Agreements, and any
other reasonable expenses
theretofore incurred by the Representative in connection with the
transactions contemplated by the Transaction Agreements of which it is
entitled to reimbursement and not previously reimbursed by the Company;
(2) To accrued interest, payable by the Company, according to
Purchaser's Proportionate Share of the accrued interest on the Bridge
Notes; and
(3) To the unpaid principal of the Bridge Notes with each Purchaser
receiving such Purchaser's Proportionate Share of such principal.
(f) The term "Proportionate Share" shall mean the outstanding principal
amount of each Purchaser's Bridge Note divided by the total outstanding
principal amount of Bridge Notes.
Section 2.8 Standard of Care of the Representative.
(a) The Representative shall endeavor in good faith to perform all
services and duties and exercise all powers hereunder specifically assigned and
delegated to the Representative, and the Representative shall perform and
exercise, and shall have the right and power to perform and exercise, such other
services and powers as are reasonably incidental thereto. Neither the
Representative nor any of its officers, directors, employees or agent shall be
liable to the Purchasers for any action or failure to act or any error of
judgment, negligence or mistake under any the Transaction Agreement or in
connection herewith and therewith (a) at the request or with the approval of the
Purchasers or (b) in the absence of its or their willful misconduct or gross
negligence. Without limiting the generality of the foregoing, the Representative
may consult with counsel or other advisors selected by it, and the
Representative shall not be liable for any action taken or omitted to be taken
in good faith by it in accordance with the advice of such counsel or other
advisors. In performing its obligations hereunder and under the Transaction
Agreements, the Representative may rely in good faith on written and telephonic
communications received by the Representative without investigating the
genuineness thereof or the power and authority of the author of such
communications. The Representative may exercise any of its powers and rights to
perform any duty under this Agreement through attorneys and agents. Each
Purchaser acknowledges and agrees that the Representative's duties and
obligations under this Agreement are administrative and ministerial in nature,
and that the Representative has no fiduciary obligation to the Purchasers.
(b) The Representative does not assume, and shall not have, any
responsibility or liability, express or implied, for the adequacy, sufficiency,
validity, collectability, genuineness, or enforceability of any of the
Transaction Agreements, for the financial condition of the Company, for
compliance by the Company with the terms and conditions of the Transaction
Agreements, for the accuracy of any financial or other information furnished to
the Purchaser by the Representative or by any other party or for the perfection
of any of the Collateral. The Representative shall not be required to ascertain
or inquire as to the performance or observance by the Company of any of the
terms, conditions, provisions, covenants, or agreements contained in any of the
Transaction Agreements or as to the use of the proceeds of the offering of the
Bridge Notes or of the existence or possible existence of any Event of Default
thereunder.
(c) The Representative may accept deposits from, lend money to, and
generally engage in any kind of banking, trust, financial advisory, or other
business with the Company or any affiliate thereof as if it were not performing
the duties specified herein, and may accept fees and other consideration from
the Company or affiliate for services in connection with such services, without
having to account for the same to the Purchasers.
(d) Neither the Representative (acting in its capacity as Representative
and not as a Purchaser) nor any of its directors, officers, employees or
Representatives shall have any responsibility to any Borrower on account of the
failure or delay in performance or breach by any Purchaser (other than the
Representative acting in its capacity as Representative) of any of its
obligations hereunder or to any Purchaser on account of the failure of or delay
in performance or breach by any other Purchaser or any Borrower of any of their
respective obligations hereunder or in connection herewith.
(e) The Representative and the Company may deem and treat the payee of any
Bridge Note as the holder thereof until written notice of transfer shall have
been delivered as provided herein by such payee to the Representative and the
Company.
(f) Each Purchaser agrees (i) to reimburse the Representative in the
amount of such Purchaser's Proportionate Share of any expenses incurred for the
benefit of the Purchasers by the Representative, including counsel fees and
compensation of representatives and employees paid for services rendered on
behalf of the Purchasers, not reimbursed by the Company and (ii) to indemnify
and hold harmless the Representative and any of its directors, officers,
employees or representatives, on demand, in the amount of its Proportionate
Share, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against it in its capacity as the Representative or any of them in any way
relating to or arising out of this Agreement or any of the other Transaction
Agreements or any action taken or omitted by it or any of them under this
Agreement or any of the other Transaction Agreements, to the extent not
reimbursed by the Company; provided, however, that no Purchaser shall be liable
to the Representative for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgment, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Representative
or any of its directors, officers, employees or Representatives.
(g) Each Purchaser acknowledges that it has, independently and without
reliance upon the Representative or any other Purchaser and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and any other Transaction
Agreement to which such Purchaser is party. Each Purchaser also acknowledges
that it will, independently and without reliance upon the Representative or any
other Purchaser and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any other Transaction
Agreement, any related agreement or any document furnished hereunder.
(h) Subject to the appointment and acceptance of a successor
Representative as provided below, the Representative may resign at any time by
notifying the Purchasers and the Company. Upon any such resignation, the
Purchasers shall have the right to appoint a successor Representative. If no
successor Representative shall have been so appointed by such Purchasers and
shall have accepted such appointment within 30 days after the retiring
Representative gives notice of its resignation, then the retiring Representative
may, on behalf of the Purchasers, appoint a successor Representative, which
successor Representative shall be reasonable acceptable to the holders of at
least 51% of the principal amount of the Bridge Notes then outstanding. Upon the
acceptance of any appointment as Representative hereunder by a successor bank,
such successor shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Representative and the retiring
Representative shall be discharged from its duties and obligations hereunder and
under each of the other Transaction Agreements. After any Representative's
resignation hereunder, the provisions of this Article
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Representative.
(i) The Purchasers hereby acknowledge that the Representative shall be
under no duty to take any discretionary action permitted to be taken by the
Representative pursuant to the provisions of this Agreement or any of the other
Transaction Agreements unless it shall be requested in writing to do so by the
Purchasers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce the Purchasers to purchase the Bridge Notes, the Company
represents and warrants to each Purchaser, except as referenced on Schedule 1
hereto (the "Disclosure Schedule"), which reference shall set forth the specific
section to which the qualification relates and the statement which constitutes
the qualification, that:
Section 3.1 Organization and Qualification. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its subsidiaries taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Agreements.
Section 3.2 Authorization, Enforcement, Compliance with Other Instruments.
(a) The Company has the requisite corporate power and authority to enter
into and perform each of this Agreement, the Bridge Notes, the Repricing
Warrants, the Warrants, the Registration Rights Agreement, the Escrow Agreement,
Stock Pledge Agreement, the Transfer Agent Instructions and any related
agreements (collectively, the "Transaction Agreements" and individually a
"Transaction Agreement"), and to issue the Bridge Notes, the Repricing Warrants,
the Warrants, the Conversion Shares, the Repricing Shares, and the Warrant
Shares;
(b) the execution and delivery by the Company of each of the Transaction
Agreements and the consummation by it of the transactions contemplated thereby,
including without limitation the issuance of the Bridge Notes, the Warrants, and
the Repricing Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Bridge Notes and the
reservation for issuance and the issuance of the Repricing Shares, and the
Warrant Shares, upon exercise of the Repricing Warrants, and the Warrants (the
Bridge Notes, the Repricing Warrants, the Warrants, the Conversion Shares, the
Repricing Shares, and the Warrant Shares are hereinafter collectively, the
"Securities") have been duly authorized by the Company's Board of Directors and
no further consent or authorization is required by the Company, its Board of
Directors, or its stockholders;
(c) each of the Transaction Agreements have been duly and validly executed
and delivered by the Company; and
(d) each of the Transaction Agreements constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
Section 3.3 Capitalization. The authorized capital stock of the Company is
set forth on Section 3.3 of the Disclosure Schedule. All of the issued and
outstanding shares of capital stock have been validly issued and are fully paid
and nonassessable. Except as described in Section 3.3 of the Disclosure
Schedule, no shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in Section 3.3 of the Disclosure Schedule, as of
the effective date of this Agreement, (a) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, or options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (b) there are no outstanding debt
securities, and (c) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement).
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities in the
manner contemplated by this Agreement. The Company has furnished to the
Purchaser true and correct copies of the Company's Certificate of Incorporation,
as amended (the "Charter") and the Company's Bylaws, as in effect on the date
hereof (the "Bylaws"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
Section 3.4 Issuance of Securities. The Bridge Notes have been duly
authorized and are free from all taxes, liens, and charges with respect to the
issue thereof. The Conversion Shares issuable upon conversion of the Bridge
Notes have been duly authorized and reserved for issuance. The Repricing
Warrants have been duly authorized and are free from all taxes, liens, and
charges with respect to the issuance thereof. The Repricing Shares issuable upon
exercise of the Repricing Warrants have been duly authorized and reserved for
issuance. The Warrants have been duly authorized and are free from all taxes,
liens, and charges with respect to the issuance thereof. The Warrant Shares
issuable upon exercise of the Warrants have been duly authorized and reserved
for issuance. Upon conversion of the Bridge Notes, the Conversion Shares will,
and upon exercise of the Repricing Warrants and the Warrants, the Repricing
Shares and the Warrant Shares will, be duly and validly issued, fully paid, and
nonassessable, and free from all taxes, liens, and charges, with respect to the
issuance thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.
Section 3.5 No Conflicts. Except as disclosed in Section 3.5 of the
Disclosure Schedule, the execution, delivery, and performance of the Transaction
Agreements by the Company, and the consummation by the Company of the
transactions contemplated thereby, will not (a) result in a violation of the
Charter or the Bylaws of the Company or (b) conflict with, constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration, or
cancellation of, any agreement, indenture, or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment, or decree (including federal and state securities
laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries is
bound or affected, except to the extent that such conflict or default would not
have a Material Adverse Effect.. Except as described in Section 3.5 of the
Disclosure Schedule, neither the Company nor any subsidiary is in violation of
any term of, or in default under, (a) its Charter or the Bylaws or their
organizational charter or bylaws, respectively, (b) or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any
statute, rule, or regulation applicable to the Company or its subsidiaries,
except to the extent that such violation or default would not have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any law, ordinance, or regulation of any governmental
entity, except to the extent that such violation would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization, or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver, and perform any of its obligations under or
contemplated by the Transaction Agreements in accordance with the terms thereof,
except to the extent that such failure would not have a Material Adverse Effect.
Except as disclosed in Section 3.5 of the Disclosure Schedule, all consents,
authorizations, orders, filings, and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 3.6 SEC Documents; Financial Statements. Except as set forth on
Schedule 3.6, since January 1, 1997, the Company has filed all reports,
schedules, forms, statements, and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to as the "SEC Documents"). The Company has made available
to each Purchaser or its representative true and complete copies of the SEC
Documents. The Company has a class of securities registered under Section 12(b)
or 12(g) of the 1934 Act or is required to file reports pursuant to Section
15(d) of the 1934 Act, and has filed all the materials required to be filed as
reports pursuant to the Exchange Act for the period the Company was required by
law to file such material. Except as set forth on Schedule 3.6, as of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except as set
forth on Schedule 3.6, as of their respective dates, the financial statements of
the Company included in the SEC Documents (the "Financial Statements") complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(a) as may be otherwise indicated in such financial statements or the notes
thereto, or (b) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and present
fairly, in all material respects, the financial position of the Company as of
the dates thereof, and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of
the Company to the Purchaser which is not included in the SEC Documents,
including, without limitation, information referred to in Section 4.4 of this
Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its subsidiaries or any of their officers,
directors, employees or agents have provided any of the Purchasers with any
material, nonpublic information.
Section 3.7 Absence of Certain Changes. Except as described in Section 3.7
of the Disclosure Schedule, since the date of the most recent balance sheet
included in the SEC Documents, there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, results of operations, or prospects of the Company or its
subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or its subsidiaries have any knowledge that its creditors intend to
initiate involuntary bankruptcy proceedings.
Section 3.8 Absence of Litigation. There is no action, suit, proceeding,
inquiry, or investigation before or by any court, public board, government
agency, self-regulatory organization, or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company, the Common Stock, or any of the Company's subsidiaries or any of the
Company or its subsidiaries, officers or directors in their capacity as such,
wherein an unfavorable decision, ruling or finding would (a) adversely affect
the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under the Transaction Agreements or (b) except as
expressly set forth in Schedule 3.8 of the Disclosure Schedule, have a Material
Adverse Effect.
Section 3.9 Purchase of Securities. The Company acknowledges and agrees
that the Purchaser is acting solely in the capacity of an arm's length purchaser
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice given by
the Purchasers or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser's purchase of the Securities. The Company
further represents to the Purchaser that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation by the
Company and its representatives.
Section 3.10 No Undisclosed Events, Liabilities, Developments, or
Circumstances. No event, liability, development, or circumstance has occurred or
exists, or to the knowledge of the Company is contemplated to occur, with
respect to the Company or its subsidiaries or their respective business,
properties, prospects, operations, or financial condition, which is more likely
than not to be material but which has not been publicly announced.
Section 3.11 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Bridge Notes or the Conversion Shares.
Section 3.12 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions nor will the company or
any of its subsidiaries take any action or steps that would require registration
of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings.
Section 3.13 Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
▇▇▇▇ ▇▇▇) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
Section 3.14 Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent rights, copyrights , inventions, licenses, approvals, governmental
authorizations, trade secrets, and rights necessary to conduct their respective
businesses as now conducted, except to the extent that such the failure to own
or possess such rights or licenses would not have a Material Adverse Effect.
Except as set forth on Section 3.14 of the Disclosure Schedule, none of the
Company's trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets, or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate in the near future. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of the
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service ▇▇▇▇ registrations, trade
secret, or other similar rights of others. Except as set forth on Section 3.14
of the Disclosure Schedule, there is no claim, action, or proceeding being made
or brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
▇▇▇▇ registrations, trade secret, or other infringement, and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality, and value of all of
their intellectual properties.
Section 3.15 Environmental Laws. The Company and its subsidiaries are (a)
in compliance with any and all applicable foreign, federal, state, and local
laws and regulations relating to the protection of human health and safety, the
environment, or hazardous, toxic substances, wastes, pollutants, or contaminants
("Environmental Laws"), (b) have received all permits, licenses, or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses, and (c) are in compliance with all terms and conditions
of any such permit, license, or approval, except to the extent that non-
compliance or failure would not have a Material Adverse Effect.
Section 3.16 Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances, and defects except as described in Section 3.16 of the Disclosure
Schedule or as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting,
and enforceable leases with such exceptions as are not material, and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries. The Pledged Assets, if any,
are owned by the Company free and clear of any and all encumbrances, liens, and
adverse claims whatsoever, has been at all times prior to the date hereof, and
shall remain from and after the date of this Agreement in the possession of the
Company and located at its principal executive offices, which is set forth in
Section 8.6. The fair market value of the Pledged Stock, together with the
Pledged Assets, if any, is not less than 200% of the principal amount of the
Bridge Notes.
Section 3.17 Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks, and in such amounts, as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for, and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial, or otherwise, or the earnings, business, or operations of
the Company and its subsidiaries, taken as a whole.
Section 3.18 Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations, and permits issued by the appropriate federal,
state, or foreign regulatory authorities necessary to conduct their respective
businesses, except to the extent that the failure to possess any such
certificate, authorization, and permit would not have a Material Adverse Effect,
and neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization, or permit.
Section 3.19 Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization, and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 3.20 No Materially Adverse Contracts, Etc. Neither the Company nor
any of its subsidiaries is subject to any charter, corporate, or other legal
restriction, or any judgment, decree, order, rule, or regulation which in the
judgment of the Company's officers has, or to the knowledge of the Company is
expected in the future to have, a Material Adverse Effect. Neither the Company
nor any of its subsidiaries is a party to any contract or agreement which in the
judgment of the Company's officers has, or to the knowledge of the Company is
expected to have, a Material Adverse Effect.
Section 3.21 Tax Status. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or filed
all federal and state income and all other tax returns, reports, and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports, and declarations, except those being contested in good faith,
and has set aside on its books amounts deemed reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports, or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company
know of no basis for any such claim, and except as set forth on Schedule 3.21,
there are no open years, examinations in progress or claims against it for
federal, state or other taxes (including penalties and interest) for any period
or periods prior to the date hereof.
Section 3.22 Certain Transactions. Except as set forth on Section 3.22 of
the Disclosure Schedule and in the SEC Documents, and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options disclosed on Section
3.22 of the Disclosure Schedule, none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or any
subsidiary of the Company (other than for services as employees, officers, and
directors), including any contract, agreement, or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director, or such employee or, to the knowledge of the Company, any
corporation, partnership, trust, or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee, or partner.
Section 3.23 Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Bridge
Notes will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Bridge
Notes in accordance with this Agreement and the Bridge Notes is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
Section 3.24 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreements) or other similar anti-
takeover provision under the Certificate of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Purchaser
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Purchaser's
ownership of the Securities.
Section 3.25 Fees and Rights of First Refusal. Except as set forth in
Section 6.20, the Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents, or other third parties.
Section 3.26 Foreign Corrupt Practices Act. The Company has not made,
offered, or agreed to offer anything of value to any government official,
political party, or candidate for government office nor has it taken any action
which would cause the Company to be in violation of the Foreign Corrupt
Practices Act of 1977.
Section 3.27 Disclosure. Neither this Agreement nor any Schedule or
Exhibit hereto, contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
SECTION 4. REPRESENTATION AND WARRANTIES OF PURCHASERS
Each Purchaser represents and warrants to the Company, with respect to such
Purchaser only that:
Section 4.1 Investment Purpose. The Purchaser is acquiring the
Securities for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, the Purchaser does not agree
to hold any Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption under the 1933 Act.
Section 4.2 Accredited Investor Status. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
Section 4.3 Reliance on Exemptions. The Purchaser understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
the Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of the Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire such securities.
Section 4.4 Information. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances, and
operations of the Company and materials relating to the offer and sale of the
Securities, which have been requested by such Purchaser. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Purchaser or its advisors, if any, or its representatives shall
modify, amend, or affect such Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 hereof. The Purchaser
understands that its investment in the Securities involves a high degree of
risk. The Purchaser has sought such accounting, legal, and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
Section 4.5 No Governmental Review. The Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the Securities,
nor have such authorities passed upon or endorsed the merits of the offering of
the Securities.
Section 4.6 Transfer or Resale. The Purchaser understands that except as
provided in the Registration Rights Agreement:
(a) the Securities have not been and are not being registered
under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned, or transferred unless;
(i) subsequently registered thereunder;
(ii) the Purchaser shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that
such securities to be sold, assigned, or transferred may be sold,
assigned, or transferred pursuant to an exemption from such
registration; or
(iii) the Purchaser provides the Company with reasonable
assurance that such securities can be sold, assigned, or transferred
pursuant to Rule 144 or promulgated under the 1933 Act (or a successor
rule thereto);
(b) any sale of such securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144")
may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of 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 defined in the
▇▇▇▇ ▇▇▇) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and
(c) neither the Company nor any other person is under any obligation
to register such securities under the 1933 Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
Section 4.7 Legends. The Purchaser understands that the certificates or
other instruments representing the Bridge Notes and, until such time as the sale
of the Conversion Shares have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement, the stock certificates representing the
Conversion Shares shall bear a restrictive legend in substantially the following
form (and a stop transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Bridge Notes and the
Conversion Shares, upon which it is stamped, if, unless otherwise required by
state securities laws, (a) the sale of the Conversion Shares is registered under
the 1933 Act, (b) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment, or transfer of the Bridge Notes and the
Conversion Shares may be made without registration under the 1933 Act, or (c)
such holder provides the Company with reasonable assurances that the Bridge
Notes and the Conversion Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold.
Section 4.8 Authorization Enforcement. This Agreement has been duly and
validly authorized, executed, and delivered on behalf of the Purchaser and is a
valid and binding agreement of the Purchaser enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
Section 4.9 Residence. The Purchaser is a resident of that jurisdiction
specified in its address on the Purchaser signature page.
Section 4.10 No Scheme to Evade Registration. The Purchaser represents
and warrants to the Company, as to itself only, that the acquisition of the
Securities is not a transaction (or any element
of a series of transactions) that is part of a plan or scheme by the Purchaser
to evade the registration provisions of the 1933 Act and that
(a) such Purchaser is an "accredited investor" within the meaning of
Rule 501 under the Securities Act;
(b) such Purchaser has sufficient knowledge and experience to
evaluate the risks and merits of its investment in the Company and it is
able financially to bear the risks thereof;
(c) such Purchaser has had an opportunity to ask questions of and
receive answers from and to discuss the Company's business, management, and
financial affairs with the Company's management;
(d) the Securities are being acquired for its own account for the
purpose of investment and not with a view to or for sale in connection with
any distribution thereof;
(e) such Purchaser was not offered nor made aware of the Company's
interest in issuing the Bridge Notes by any means of public advertisement
or solicitation;
(f) in connection with such Purchaser's purchase of the Securities,
it has been solely responsible for its own (i) due diligence investigation
of the Company and (ii) investment decision, and has not engaged or relied
upon any agent or "purchaser representative" to review or analyze the
Company's business and affairs or advise the Purchaser with respect to the
merits of the investment;
(g) such Purchaser has full power and authority to execute, deliver,
and perform this Agreement; and this Agreement constitutes the legal,
valid, and binding obligation of such Purchaser, enforceable against it in
accordance with their respective terms; and
(h) if such Purchaser proposes to sell the Securities pursuant to
Rule 144A under the Securities Act, it will (A) take reasonable steps to
obtain the information required by such Rule to establish a reasonable
belief that the prospective purchaser is a "qualified institutional buyer"
as such term is defined in Rule 144A and (B) advise the prospective
purchaser that the Purchaser is relying on the exemption from the
registration provisions of the Securities Act available pursuant to Rule
144A.
Section 4.11 Covenant Not to Trade. Each Purchaser covenants and agrees,
not to purchase, sell, make any short sale of, pledge, grant any option for the
purchase or sale of or otherwise trade any Common Stock prior to the conversion
of the Bridge Notes (other than a purchase of Common Stock from the Company
pursuant to the exercise of the Repricing Warrant or the Warrant), without the
prior written consent of the Company.
SECTION 5. CONDITIONS TO EACH CLOSING
Each Purchaser's obligation to purchase and pay for the Securities is
subject to the satisfaction prior to or at each Closing of the following
conditions provided that these conditions are for each Purchaser's sole benefit
and may be waived by such Purchaser at any time in its sole discretion:
Section 5.1 Transaction Agreements. The Company shall have delivered to
the Purchaser the Transaction Agreements as provided in Section 1.5, above,
executed by all the parties thereto.
Section 5.2 Opinion of Counsel. The Purchaser shall have received from
counsel for the Company, an opinion in substantially the form of Exhibit E,
addressed to the Purchaser, dated the Closing Date.
Section 5.3 Representations and Warranties; No Default. The
representations and warranties of the Company contained in this Agreement and
those otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall be true when made and
as of the Closing Date, except to the extent of changes caused by the
transactions contemplated herein; provided, however, that there shall exist at
the time of the Closing and after giving effect to such transactions no default
or Event of Default (as defined in Section 10 of the Bridge Notes) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Agreements to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Purchaser shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect, and an update as of the Closing Date of the representation contained in
Section 3 (c) above.
Section 5.4 Purchase and Loan Permitted by Applicable Laws. The purchase
of, and payment for, all the Securities evidenced by or attendant to the Bridge
Notes shall not violate any applicable domestic law or governmental regulation
(including, without limitation, Section 5 of the Securities Act) and shall not
subject the Purchaser to any tax, penalty, liability, or other onerous condition
under, or pursuant to, any applicable law or governmental regulation or order.
Section 5.5 No Adverse Litigation. There shall be no action, suit,
investigation, or proceeding, pending or, to the best of the Purchaser's or the
Company's knowledge, threatened, against or affecting the Purchaser, the
Company, any of the Purchaser's or the Company's properties or rights, or any of
the Purchaser's or the Company's Affiliates, officers, or directors, by or
before any court, arbitrator, or administrative or governmental body which (i)
seeks to restrain, enjoin, prevent the consummation of, or otherwise affect the
transactions contemplated by this Agreement or (ii) questions the validity or
legality of any such transactions, or (iii) seeks to recover damages or obtain
other relief in connection with any such transactions, and, to the best of the
Purchaser's and the Company's knowledge, there shall be no valid basis for any
such action, proceeding, or investigation, and the Purchaser shall have received
a certificate executed by the chief executive officer of the Company, dated the
Closing Date, to such effect.
Section 5.6 Approvals and Consents. The Company shall have duly received
all authorizations, waivers, consents, approvals, licenses, franchises, permits,
and certificates (collectively, "Consents") by or of all federal, state, and
local governmental authorities and all material consents by or of all other
persons necessary or advisable for the issuance of the Bridge Notes, all such
consents shall be in full force and effect at the time of Closing, and the
Purchaser shall have received a certificate executed by the chief executive
officer of the Company, dated the Closing Date, to such effect.
Section 5.7 No Material Adverse Change. Since the date of the balance
sheet in the most recently filed SEC Document filed at least 10 days prior to
the Closing Date, there shall not have been any material adverse change in the
business, condition (financial or other), assets, properties, operations, or
prospects of the Company, and the Purchaser shall have received a certificate
executed by the chief executive officer of the Company, dated the Closing Date,
to such effect.
Section 5.8 Proceedings. All proceedings taken or to be taken in
connection with the transactions contemplated hereby, and all documents incident
thereto shall be reasonably satisfactory in
form and substance to the Purchaser and the Purchasers counsel, and the
Purchaser and the Purchasers counsel shall have received all such counterpart
originals or certified or other copies of such documents as the Purchaser or the
Purchaser's counsel may reasonably request.
Section 5.9 Secretary Certificate. The Purchaser shall have received a
Secretary's Certificate from the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached thereto is a
true and complete copy of the Charter as then in effect, certified or bearing
evidence of filing by the Secretary of State of Nevada, and (B) a certificate of
said Secretary of State, dated as of a recent date as to the due incorporation
and good standing of the Company, the payment of all franchise taxes by the
Company, and listing all documents of the Company on file with said Secretary of
State; (C) that attached thereto is a true and complete copy of the Bylaws of
the Company as in effect on the date of such certification; (D) that attached
thereto is a true and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the execution,
delivery, and performance of Transaction Agreements and the issuance, sale, and
delivery of the Securities, and that all such resolutions are in full force and
effect and are all the resolutions adopted in connection with the foregoing
agreements and the transactions contemplated thereby; (E) that the Charter has
not been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (A) above; and (F) to the incumbency
and specimen signature of each officer of the Company executing all Transaction
Agreements and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate.
Section 5.10 Transfer Agent Instructions. The Transfer Agent Instructions
shall have been delivered to and acknowledged in writing by the Company's
transfer agent and remain in full force and effect.
Section 5.11 Lien Search. If the Collateral includes any Pledged Assets,
the Company shall have obtained a lien search, the results of which shall
indicate that, upon filing of the UCC Financing Statements contemplated hereby,
the Purchasers will have a first priority security interest in the Collateral.
Section 5.12 UCC Financing Statements. If the Collateral includes any
Pledged Assets, the Company shall have promptly filed the appropriate UCC
Financing Statement in the form, manner, time, and place of filing required by
the county and state where the Collateral is situated, to properly perfect the
security granted herein.
Section 5.13 No Suspensions. There are no suspensions of trading in or in
delisting (or pending delisting) of the Common Stock, including the removal from
the OTC Bulletin Board the "OTCBB").
Section 5.14 Stockholder Approval. If the Common Stock is then listed or
traded on a principal securities exchange or The Nasdaq Stock Market, the
Company shall have obtained stockholder approval in accordance with Section
6.11.
SECTION 6. AFFIRMATIVE COVENANTS
The Company covenants to each Purchaser that from and after the date of
this Agreement through the Closing and thereafter so long as any of the Bridge
Notes remain outstanding:
Section 6.1 Financial Information. The Company shall furnish to the
Purchaser:
(a) within five (5) days after the filing thereof with the SEC,
a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K, and any registration statements or
amendments filed pursuant to the 1933 Act;
(b) within three (3) days after release thereof, copies of all
press releases issued by the Company or any of its subsidiaries;
(c) copies of the same notices and other information given to
the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders;
(d) promptly upon any officer of the Company obtaining knowledge
(i) of any condition or event which constitutes an Event of Default, (ii)
that the holder of any Bridge Notes has given any notice or taken any other
action with respect to a claimed Event of Default under this Agreement,
(iii) of any condition or event which, in the opinion of management of the
Company would have a Material Adverse Effect, other than conditions or
events applicable to the economy as a whole, (iv) that any person has given
any notice to the Company or taken any other action with respect to a
claimed Event of Default, or (v) of the institution of any litigation
involving claims against the Company, unless such litigation is defended by
the insurance carrier without any reservation of rights and is reasonably
expected to be fully covered by a creditworthy insurer, in an amount equal
to or greater than $250,000 with respect to any single cause of action or
of any adverse determination in any litigation involving a potential
liability to the Company equal to or greater than $250,000 with respect to
any single cause of action, a certificate executed by the chief executive
officer of the Company specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by
such holder or person and the nature of such claimed Event of Default,
event or condition, and what action the Company has taken, is taking, or
proposes to take with respect thereto; and
(e) with reasonable promptness, such other information and data
with respect to the Company as the Purchaser may reasonably request;
provided, however, that to the extent that such information is reasonably
determined by the Company to be confidential, only after execution by the
Purchaser of a confidentiality agreement reasonably acceptable to the
Company.
Section 6.2 Form D; Form 8-K. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Purchaser at each Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Purchaser on or prior to the Closing Date. On or before the fifth (5th) business
day following the Initial Closing Date and on or before the fifth (5th) business
day following any Additional Closing Date involving a material amount of Bridge
Notes, the Company shall file a Form 8-K with the SEC describing the terms of
the transaction contemplated by the Transaction Agreement and consummated on
such Closing Date or Additional Closing Date, as the case may be, in each case
in the form required by the 1934 Act.
Section 6.3 Reporting Status. Until the earlier of (a) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction pursuant to
Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b) the
date on which (i) the Investors shall have sold all the Conversion Shares and
(ii) none of the Bridge Notes is outstanding (the "Registration Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
Section 6.4 Inspection of Property. The Company will permit any Person
designated by any Purchaser in writing, at the Purchaser's expense, to visit and
inspect any of the properties of the Company, to examine the books and financial
records of the Company and make copies thereof or extracts therefrom and to
discuss its affairs, finances, and accounts with its officers and its
independent public accountants, all at reasonable times and upon reasonable
prior notice to the Company; provided, however, that to the extent that such
information is reasonably determined by the Company to be confidential, only
after execution by the Purchaser of a confidentiality agreement reasonably
acceptably to the Company.
Section 6.5 Maintenance of Properties; Insurance. The Company will
maintain or cause to be maintained in good repair, working order, and condition
all properties that used or useful in the business of the Company unless failure
to so maintain will not have a Material Adverse Effect and from time to time
will make or cause to be made all appropriate repairs, renewals, and
replacements thereof. The Company will maintain or cause to be maintained, with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
laws of the jurisdiction in question), insurance with respect to their
respective properties and businesses against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or similar businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances by such other
corporations and as are in good faith believed by the Company to be sufficient
to prevent the Company from becoming a co-insurer within the terms of the
policies in question.
Section 6.6 Maintenance of Security Interest. If the Collateral includes
any Pledged Assets, the Company will at all times maintain or cause to be
maintained a perfected first priority security interest in Collateral as
security therefor in favor of all holders of the Bridge Notes as a group. The
value of the Collateral will at all times have a value of not less than 200% of
the aggregate principal amount of the Bridge Notes then outstanding.
Section 6.7 Expenses. The Company and the Purchasers shall pay all costs
and expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution, and delivery of this Agreement, the
Bridge Notes, the Escrow Agreement, the Registration Rights Agreement, and other
documents executed in connection with the issuance of the Bridge Notes, except
that the Company shall pay the fees and expenses of one legal counsel for the
Purchasers. The fees and expenses of Sovereign Capital Advisors, LLC and the
fees and expenses of legal counsel to the Purchasers for the First Closing (not
to exceed $25,000 in legal fees plus all expenses) shall be paid by the Company
at the First Closing and the fees and expenses of Sovereign Capital Advisors,
LLC and legal counsel for the Purchasers for all Additional Closings (not to
exceed $7,500 in legal fees for each Additional Closing plus all expenses) shall
be paid for by the Company at each such Additional Closing.
Section 6.8 Authorized Shares of Common Stock, Reservation of Shares.
The Company shall at all times, so long as any of the Bridge Notes are
outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Bridge
Notes, such number of shares of Common Stock equal to or greater than 150% of
the number of Conversion Shares issuable upon conversion of the Bridge Notes
which are then outstanding or which could be issued at any time under this
Agreement.
Section 6.9 Corporate Existence, Etc. The Company will at all times
preserve and keep in full force and effect its corporate existence, and rights,
licenses, and franchises material to its business, and will qualify to do
business as a foreign corporation in each jurisdiction where the failure to so
qualify would have a Material Adverse Effect.
Section 6.10 Transfer Agents. The Company covenants and agrees that, in
the event that the Company's agency relationship with the transfer agent should
be terminated for any reason, the Company shall immediately appoint a new
transfer agent and shall require that the transfer agent execute and agree to be
bound by the terms of the Irrevocable Instructions to Transfer Agent.
Section 6.11 Stockholder Approval; Proxy. If the Common Stock becomes
listed on a principal securities exchange or The Nasdaq Stock Market, the
Company covenants to submit to its stockholders a proposal for ratification of
the issuance of the Bridge Notes, the Conversion Shares and Warrant Shares and
the Repricing Warrant Shares, if and as required by the rules of such exchange
or the National Association of Securities Dealers, Inc. (the "NASD"), as the
case may be, applicable to the transaction. All officers and directors will,
upon request of the Purchaser, execute a proxy authorizing the Purchaser or any
designee of the Purchaser to vote all shares of Common Stock, the voting of
which is controlled by such officer or director, at any meeting (or any
adjournment thereof) at which Stockholder action is proposed to ratify the
issuance of the Bridge Notes and the Conversion Shares.
Section 6.12 Transfer Agent Instructions. The Company shall issue
Transfer Agent Instructions to its transfer agent to issue certificates,
registered in the name of the Purchaser or its respective nominee(s), for the
Conversion Shares, the Repricing Shares, and the Warrant Shares in such amounts
as specified from time to time by the Purchaser to the Company upon conversion
of the Bridge Notes. Prior to registration of the Conversion Shares under the
1933 Act, all such certificates shall bear the restrictive legend specified in
Section 4.7 of this Agreement. The Company warrants that no instruction other
than the Transfer Agent Instructions referred to in this Section 6.12, and stop
transfer instructions to give effect to Section 4.7 hereof (in the case of the
Conversion Shares, prior to registration of such shares under the ▇▇▇▇ ▇▇▇) will
be given by the Company to its transfer agent and that the Bridge Notes and the
Conversion Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 6.12 shall affect in any
way the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Bridge Notes or Conversion Shares. If the
Purchaser provides the Company with an opinion of counsel, reasonably
satisfactory in form, and substance to the Company, that registration of a
resale by the Purchaser of any of the Bridge Notes or Conversion Shares is not
required under the 1933 Act, the Company shall permit the transfer, and, in the
case of the Conversion Shares, promptly instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by the
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Purchaser by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.12 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section
6.12, that the Purchaser shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section 6.13 Payment of Taxes. The Company will pay all taxes,
assessments, and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income,
or properties before any penalty or significant interest accrues thereon, and
all claims (including, without limitation, claims for labor, services,
materials, and supplies) for sums which have become due and payable and which by
law have or may become a lien upon any of its properties or assets; provided,
however, that no such charge or claim need be paid if such claim is (i) being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and (ii) the amount of such claim is accrued on the
financial statements of the Company or other appropriate provision is made as
shall be required by generally accepted accounting principles.
Section 6.14 Compliance with Laws, Etc. The Company will comply with the
requirements of all applicable laws, rules, regulations, and orders of any court
or other governmental authority (including, without limitation, those related to
environmental or ERISA compliance), noncompliance with which could materially
adversely affect the business, condition (financial or other), assets, property,
operations, or prospects of the Company.
Section 6.15 Use of Proceeds. The Company will use the proceeds from the
sale and issuance of the Bridge Notes primarily for the making of an equity
investment in ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and the balance for operating capital purposes.
Section 6.16 Registration Statement. The Company shall comply with all of
the dates and obligations contained in the Registration Rights Agreement.
Section 6.17 Listings. The Company shall promptly secure the listing of
the Conversion Shares, the Repricing Shares and the Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listings of all Conversion Shares, the Repricing Shares and the
Warrant Shares from time to time issuable under the terms of the Bridge Notes,
the Repricing Warrants, the Warrants, and the Registration Rights Agreement.
Until the Common Stock is listed on a national securities exchange or The Nasdaq
Stock Market, the Company shall maintain the Common Stock's authorization for
quotation in the OTCBB. The Company shall promptly provide to the Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading in the over-the-counter market.
Section 6.18 Indemnification. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Securities hereunder
and in addition to all of the Company's other obligations under this Agreement,
the Company shall defend, protect, indemnify, and hold harmless each Purchaser
and each other holder of the Securities and each officer, director, employee,
and agent of each Purchaser (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities, and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements of counsel reasonably
acceptable to the Company (the "Indemnified Liabilities"), incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or
warranty made by the Company in any Transaction Agreement or any other
certificate, instrument, or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement, or obligation of the Company contained in the
Transaction Agreements, or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit, or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance, or enforcement of this Agreement or any other
instrument, document, or agreement executed pursuant hereto by any of the
Indemnitees, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Bridge Notes,
or the status of the Purchaser or holder of the Bridge Notes or the Conversion
Shares, as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
Section 6.19 Best Efforts. The Company shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Section 5
of this Agreement.
Section 6.20 Right of First Refusal.
(a) For a period of one (1) year after the Closing Date of the
last Additional Closing, the Purchasers shall have a right of first refusal to
purchase any Private Securities (as defined below) that the Company propose to
issue and sell after the date of this Agreement, with each Purchaser being
entitled to purchase its pro rata share. A Purchaser's pro rata share shall be
equal to the ratio of (x) the aggregate principal amount of Bridge Notes, which
the Purchaser holds immediately prior to the issuance of such Private Securities
to (y) the total principal amount of Bridge Notes outstanding immediately prior
to the issuance of the Private Securities. To the extent that any Purchaser does
not exercise its right of first refusal to purchase its pro rata share, such
right shall be re-allocated among the remaining Purchasers. The term "Private
Securities" shall mean (i) any common stock, preferred stock or other equity
security of the Company, (ii) any equity or debt security convertible, with or
without consideration, into any common stock, preferred stock or other security
of the Company (including any option to purchase such a convertible security),
(iii) any equity or debt security of the Company carrying any warrant or right
to subscribe to or purchase any common stock, preferred stock or other equity
security of the Company, or (iv) any such warrant or right to purchase any of
the forgoing, other than a security issued in a public offering under the
Securities Act of 1933.
(b) If the Company proposes to issue any Private Securities, it
shall give each Purchaser written notice of its intention, describing the
Private Securities in detail, and the price and the terms and conditions upon
which the Company proposes to issue the same. Each Purchaser shall have ten (10)
business days (the "Right of Refusal Offer Period") from the giving of such
notice to agree to purchase its pro rata share of the Private Securities for the
price and upon the terms and conditions specified in the notice by giving
written notice to the Company and stating therein the quantity of Private
Securities to be purchased (and the additional amount, if any, of Private
Securities it will purchase if any other Purchaser declines to exercise its
right of first refusal), subject to the consummation of the issuance of Private
Securities in accordance with the written notice. If any Purchaser declines to
purchase any of the Private Securities or fails to notify the Company of its
intention to purchase its pro rata share during the Right of Refusal Offer
Period, the Company shall be entitled during the ninety (90) day period
beginning on the last day of the Right of Refusal Offer Period to sell any of
the Private Securities which the Purchasers have not elected to purchase;
provided, however, that the terms of sale are on the same material terms and
conditions as those offered to the Purchasers. If the Company desires to sell
any Private Securities after the expiration of such ninety (90) day period or
upon terms and conditions that
are material different than those offered to the Purchasers, it may do so only
after again complying with the provisions of this Section 6.20. A Purchaser's
waiver of its rights of first refusal with respect to any specific transaction
shall not act as a waiver of its rights with respect to any future transactions
within the applicable time period.
SECTION 7. NEGATIVE COVENANTS
The provisions of this Section 7 shall remain in effect so long as any
of the Bridge Notes shall remain outstanding.
Section 7.1 Definition of Debt.
For purposes of this Agreement, the capitalized term "Debt" of any
Person shall mean:
(a) all indebtedness of such Person for borrowed money,
including without limitation obligations evidenced by bonds, debentures,
Bridge Notes, or other similar instruments;
(b) all indebtedness guaranteed in any manner by such Person, or
in effect guaranteed by such Person through an agreement to purchase,
contingent or otherwise;
(c) all accounts payable which, to the knowledge of such Person,
have remained unpaid for a period of 180 days after the same become due and
payable in accordance with their respective terms taking into account any
grace period relating to the due date expressly set forth in the applicable
invoice with respect to the payment of such accounts payable;
(d) all indebtedness secured by any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in property owned by
such Person, even though such Person has not assumed or become liable for
the payment of such indebtedness;
(e) all indebtedness created or arising under any conditional
sale agreement or lease in the nature thereof (including obligations as
lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capitalized leases)
(but excluding operating leases) or other title retention agreement with
respect to property acquired by such Person, even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession of such property;
(f) all bankers' acceptances and letters of credit; and
(g) liabilities in respect of unfunded vested benefits under
Plans covered by Title IV of ERISA.
Section 7.2 Restrictions on Dividends. The Company will not (a) pay any
dividends, in cash or otherwise, on, (b) make any distributions to holders of,
or (c) purchase, redeem, or otherwise acquire any of its outstanding Common
Stock or set apart assets for a sinking or other analogous fund for the
purchase, redemption, retirement, or other acquisition of, any shares of its
Common Stock; provided, however, that the Company may, so long as at the time of
and after giving effect thereof no Event of Default has occurred and is
continuing: (i) with prior written approval of each holder of Bridge Notes,
repurchase shares of its Common Stock issued or to be issued by the Company upon
exercise of stock options granted to employees and directors of the Company
pursuant to the terms of plans adopted by the
Board of Directors of the Company; and (ii) pay cash in lieu of fractional
shares of its Common Stock on the exercise of outstanding warrants to purchase
its Common Stock, pursuant to the terms of such warrants.
Section 7.3 Restrictions on Transactions with Affiliates. So long as any
Bridge Notes are outstanding the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or Affiliates with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on a
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to control or govern the policies of another person or
entity.
Section 7.4 Exceptions With Consent of the Purchasers. The Company may
seek an exception to any prohibited action under this Section by first, giving
written notice to all the holders of Bridge Notes under this Agreement, along
with copies of all documentation requested by any Purchaser relating to such
requested exception, and second, in the sole discretion of the holders of the
Bridge Notes, satisfactorily responding to any holders inquiries about the
requested action. The Company may undertake any such requested action otherwise
prohibited by this Section 7 only after receiving the advance written consent of
the holders of at least two-thirds (2/3) of the principal amount of the Bridge
Notes then outstanding.
SECTION 8. MISCELLANEOUS.
Section 8.1 Restrictions on Conversion and Exercise.
Notwithstanding any rights of conversion or exercise contained in the
Series 1 Bridge Notes, the Repricing Warrants or Purchaser Warrants, in no event
shall any Purchaser or subsequent holder thereof be entitled to convert or
exercise any Series 1 Bridge Notes, Repricing Warrants or Purchaser Warrants in
excess of that number which, upon giving effect to such conversion or exercise,
would cause the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion or exercise of any Series 1 Bridge Notes, Repricing Warrants or
Purchaser Warrants with respect to which the determination of such proviso is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) conversion of the remaining, unconverted or unexercised
Series
1 Bridge Notes, Repricing Warrants and Purchaser Warrants beneficially owned by
the holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 8.1, beneficial ownership shall be
calculated in accordance with Section 13(d) of the 1934 Act.
Section 8.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
Section 8.3 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 8.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 8.5 Entire Agreement. Amendments. This Agreement supersedes all
other prior oral or written agreements between the Purchaser, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant, or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the Company and the holders of at least two-thirds (2/3) of the
principal amount of Bridge Notes then outstanding, and no provision hereof may
be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the Preferred Shares then
outstanding.
Section 8.6 Notices. Any notice, consent, waiver, or other communication
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided, that a
copy is mailed by U.S. certified mail, return receipt requested, (c) three (3)
days after being sent by U.S. certified mail, return receipt requested, or (d)
one (1) day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
Sichenzia, Ross & ▇▇▇▇▇▇▇▇ LLP
135 West 5oth Street, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser, to its address and facsimile number on the signature
page of such Purchaser hereto, with copies to such Purchaser's counsel as set
forth on the signature page of such Purchaser hereto. Each party shall provide
five (5) days prior written notice to the other party of any change in address
or facsimile number.
Section 8.7 Interest. In no event shall the amount of interest due or
payable hereunder or under the Bridge Notes exceed the maximum rate of interest
allowed by applicable law, and if any such payment is inadvertently made by the
Company or is inadvertently received by any holder of Bridge Notes, then such
excess sum shall be credited as a payment of principal, unless the applicable
holder of a Bridge Notes shall notify the Company in writing that it elects to
have such excess sum returned forthwith. It is the express intent hereof that
the Company not pay and the holder of the Bridge Notes not receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may
legally be paid by the Company under applicable law.
Section 8.8 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of two-
thirds (2/3) of the principal amount of the Bridge Notes then outstanding. Any
Purchaser may assign its rights hereunder without the consent of the Company;
provided, however, that any such assignment shall not release such Purchaser
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption.
Section 8.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.10 Survival. The representations, warranties, agreements,
covenants and indemnification provisions contained in this Agreement shall
survive each of the Closings. Each Purchaser shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
Section 8.11 Publicity. The Company and the Purchasers shall have the
right to approve, before issuance, any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Purchasers, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although the
Purchaser shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
Section 8.12 Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments, and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 8.13 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 8.14 Governing Law. The corporate laws of the State of California
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the Purchasers and the Company have caused this Series
1 Bridge Note Purchase and Security Agreement to be duly executed as of the date
first written above.
[Signatures on the following page]
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
COMPANY
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
__________________________
Name: Max Toghraie
Title: CEO
EXHIBIT 10.20
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement"), is made as of June 15, 2000, by
and between CUMETRIX DATA SYSTEMS CORP, a California corporation (the
"Company"), and SOVEREIGN CAPITAL ADVISORS, LLC, a Nevada limited liability
company ("Agent").
Background
The Company desires to issue and sell certain convertible debt securities
and warrants (the "Securities") in accordance with the attached term sheet,
resulting in gross proceeds to the Company of up to $1,500,000 (the "Offering")
in a transaction not involving a public offering and without registration under
the Securities Act of 1933 (the "Securities Act"), pursuant to exemptions from
the registration requirements of the Securities Act under Section 4(2) of the
Securities Act and Regulation D promulgated under the Securities Act
("Regulation D"). Agent has offered to introduce the Company to prospective
accredited investors (any such investor who is so introduced to the Company by
Agent is hereinafter referred to as an "Introduced Investor") and the Company
desires to secure the services of Agent on the terms and conditions hereinafter
set forth.
Agreement
For and in consideration of the mutual covenants herein, and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto agree:
Section 1. Engagement of Agent.
Section 1.1 Appointment. The Company hereby appoints Agent as its non-
exclusive agent in connection with the proposed issuance and sale by the Company
of Securities. Agent, on the basis of the representations and warranties herein
contained, and upon and subject to the terms and conditions herein set forth,
accepts such appointment. This appointment shall be irrevocable for the sixty
(60) day period, commencing on the date hereof and ending August 15, 2000, which
period maybe extended by the mutual consent of the Company and Agent (the
"Term").
Section 1.2 Compensation. The Company shall pay Agent a fee of One Hundred
Fifty Thousand Dollars ($150,000) at or before the first closing (the "Closing")
of any sale of Securities to an Introduced Investor. The Company agrees that
such fee and any expenses for which Agent is entitled to reimbursement under
Section 1.3 shall be paid at the Closing and Agent shall be entitled to instruct
the escrow agent (the "Escrow Agent") for the Offering to deduct such amount,
along with any amounts payable pursuant to Section 1.3 hereof, from the proceeds
of the sale of the Securities prior to remittance of the balance of such
proceeds to the Company. In addition, the Company shall issue to Agent at or
prior to the Closing, a warrant (each a "Warrant") to purchase 100,000 shares of
the Company's common stock, exercisable for a period of four years from the
Closing at an exercise price of 125% of the average closing bid price of the
Company's common stock for the five trading days ending on the trading day
immediately preceding the Closing and otherwise on the same terms and conditions
as the warrants issued to any Introduced Investors. To the extent that the
Securities are sold at one or more closing, the fee shall be paid, and the
warrant shall be issued, in proportion to the amount of Securities issued at
each such closing.
Section 1.3 Reimbursement of Expenses. The Company shall reimburse Agent
for any out-of pocket expenses incurred by Agent in the preparation of this
Agreement or the performance of its obligations hereunder, including without
limitation legal fees and expenses; provided, however, that the fees of Legal
Counsel which the Company shall be required to pay pursuant to this Section 5
shall not exceed $25,000, when aggregated with any legal fees paid at the First
Closing by the Company to legal counsel for the Purchasers.
Section 1.4 Limited Role of Agent.
(a) Agent will act only as an advisor to the Company, and
in such role, Agent only will identify and use its reasonable efforts to
introduce the Company to "accredited investors" as defined in Regulation D, and
to give the Company, upon request, advise on the terms of the Securities (the
"Services"). The Company acknowledges and understands that, other than set forth
above, Agent will not render any other services or give any other advice to the
Company. The Company further acknowledges and understands that Agent is not
authorized to negotiate the terms of the transaction with any Introduced
Investor on behalf of the Company or to execute the transaction on behalf of the
Company and the Company and not Agent, will negotiate directly with any
Introduced Investors.
(b) The Company recognizes that Agent now renders, and may
continue to render, services similar to the Services to other companies which
may or may not conduct activities similar to those of the Company. Agent shall
be free to pursue, conduct and carry on such activities, employment, ventures,
business and other pursuits as Agent in its sole, absolute and unfettered
discretion may elect. The Company also understands that the Introduced Investors
may include one or more funds, the investment manager of which is an affiliate
of Agent and certain of whose principals are the same as the principals of
Agent. In light of the foregoing, the Company recognizes that in negotiating the
terms of the Offering with the Introduced Investors, the investment manager and
its principals will be acting as on behalf of its clients and not the Company.
The Company acknowledges that the performance by Agent of services the same as
or similar to the Services for others shall not be deemed a conflict of interest
or a breach of this Agreement.
Section 1.5 Confidentiality. The Company agrees to maintain the
confidentiality of all Introduced Investors and will not disclose or other use
or make available the names or identity of any Introduced Investor. In addition,
for a period of two (2) years from the date of the last sale of any Securities
to an Introduced Investor, the Company will not solicit or enter into any
financing transaction with any Introduced Investor unless the Company pays to
Agent, as compensation, an amount equal to the amount that Agent would have
received hereunder for raising a like amount.
Section 2. Conduct of the Offering.
Section 2.1 Offering Documents. The Company agrees to furnish to each
Introduced Investor who the Company determines to offer Securities (each, an
"Offeree") offering materials consisting of (i) filings made with the Securities
and Exchange Commission since the beginning of the Company's last completed
fiscal year (the "SEC Documents"), (ii) other information with respect to the
business and properties of the Company and any recent developments, (iii) a
purchase agreement and any related documents, and (iv) any other financial or
business information, documents or other materials as such Offeree may
reasonably request (all the foregoing collectively referred to as, the "Offering
Materials").
2
Section 2.2 Accuracy of Offering Documents. The Company represents,
warrants and covenants that (a) at the time of delivery to each Offeree, the SEC
Documents conformed in all material respects with the requirements, to the
extent applicable, of the Securities and Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations promulgated thereunder ("Rules and
Regulations"), and none of the Offering Documents will include any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein, or necessary, to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) at each
Closing, the SEC Documents will conform in all material respects with the
applicable Rules and Regulations, and none of the Offering Documents will
include at the time of a Closing any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges that Agent accepts no
responsibility for the contents, accuracy or adequacy of the Offering Documents.
Section 2.3 Duty to Amend. If, at any time during the Offering, any event
occurs as a result of which the SEC Documents or any of the other Offering
Documents as then amended or supplemented would include an untrue statement of a
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time after the date hereof to amend
or supplement the SEC Documents to comply with the Exchange Act or the
applicable Rules and Regulations, the Company shall forthwith notify each
Offeree and Agent thereof and shall prepare such further amendment or supplement
to the SEC Documents or the other Offering Documents as may be required and
shall furnish and deliver to each Offeree and Agent a copy of the amendment or
supplement or of the amended or supplemented SEC Documents or the other Offering
Documents which, as so amended or supplemented, will not contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the SEC Documents or the other Offering Documents not misleading
in the light of the circumstances when it is delivered to a purchaser or
prospective purchaser, and in order that the SEC Documents will comply in all
respects with the requirements (to the extent applicable) of the Exchange Act
and the applicable Rules and Regulations.
Section 3. Representations and Warranties
Section 3.1. Representations and Warranties of the Company. The Company
represents and warrants that this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company enforceable against the Company in accordance with its terms except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditors' rights generally and by general equity principles. The Company
further represents and warrants that consummation of the transactions
contemplated herein will not conflict with or result in a breach of, or
constitute a default under, any of the terms, provisions or conditions of its
charter documents or bylaws or any written agreement to which it is a party or
by which it or its assets are bound, nor will such actions result in the
violation of any applicable law, regulation or order.
Section 3.2. Representations and Warranties of Agent. Agent represents
and warrants that this Agreement has been duly authorized, executed and
delivered by Agent and constitutes a valid and binding agreement of Agent
enforceable against Agent in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors' rights generally and by
general equity principles.
3
Section 4. Indemnification.
Section 4.1 Indemnification of Agent. The Company agrees to indemnify and
hold harmless Agent, its affiliates and their respective officers, directors,
employees, agents and controlling persons (collectively, the "Indemnified
Parties"), from and against any losses, claims, damages and liabilities, joint
or several, related to or arising in any manner out of the Offering or any
transaction, financing, proposal or any other matter (collectively, the
"Matters") contemplated by this Agreement hereunder, and will promptly reimburse
the Indemnified Parties for all reasonable expenses (including reasonable fees
and expenses of legal counsel) as incurred in connection with the investigation
of, preparation for or defense of any pending or threatened claim related to or
arising in any manner out of any Matter contemplated by the engagement of Agent
hereunder, or any action or proceeding arising therefrom (collectively,
"Proceedings"), whether or not such Indemnified Party is a formal party to any
such Proceeding. Notwithstanding the foregoing, the Company shall not be liable
in respect of any losses, claims, damages, liabilities or expenses that a court
of competent jurisdiction shall have determined by final judgment resulted from
the gross negligence or willful misconduct of an Indemnified Party. The Company
further agrees that it will not, without the prior written consent of Agent,
settle, compromise or consent to the entry of any judgment in any pending or
threatened Proceeding in respect of which indemnification may be sought
hereunder (whether or not Agent or any Indemnified Party is an actual or
potential party to such Proceeding), unless such settlement, compromise or
consent includes an unconditional release of Agent and each other Indemnified
Party hereunder from all liability arising out of such Proceeding.
Section 4.2 Notice of Claims. The Indemnified Parties shall promptly give
the Company notice (the "Indemnification Notice") of any matter which the
Indemnified Parties have determined has given or could give rise to a right of
indemnification under this agreement, provided that a failure on the part of an
Indemnified Party to notify the Company will not relieve the Company from any
liability that the Company may have on account of this indemnity or otherwise,
except to the extent that the Company shall have been materially prejudiced by
such failure. If, promptly after its receipt of the Indemnification Notice, the
Company acknowledges its obligation to indemnify the Indemnified Parties
hereunder against any losses that may result from such claim, then the Company
shall be entitled to assume and control the defense of such claim at its expense
and through counsel of its choice unless such counsel is reasonably
unsatisfactory to Agent. Any Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the Company shall have failed promptly to assume
the defense thereof and employ counsel, or (ii) the named parties to such action
(including impleaded parties) include such Indemnified Party and the Company and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to it that are different from or in addition to
those available to the Company; provided that the Company shall not in any event
be responsible hereunder for the fees and expenses of more than one firm of
separate counsel in connection with any action in the same jurisdiction, in
addition to any local counsel. In the event that the Company exercises the
right to undertake any such defense against any such claim, the Indemnified
Parties shall cooperate with the Company in such defense and make available to
the Company all witnesses, pertinent records, materials and information in the
Indemnified Parties possession or under the Indemnified Parties' control
relating thereto as is reasonably required by the Company
Section 4.3 Contribution. The Company agrees that if any indemnification
or reimbursement sought pursuant to this Agreement were for any reason not to be
available to any
4
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims, damages
and liabilities in such proportion as is appropriate to reflect the relative
benefits to the Company and its stockholders on the one hand, and Agent on the
other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to Agent with
respect to Agent's engagement shall be deemed to be in the same proportion as
(i) the total value paid or received or to be paid or received by the Company
and/or its stockholders pursuant to the Matters (whether or not consummated) for
which Agent is engaged to render financial advisory services bears to (ii) the
fees paid (or agreed to be paid if the transaction would be consummated) to
Agent in connection with such engagement. In no event shall the Indemnified
Parties contribute or otherwise be liable for an amount in excess of the
aggregate amount of fees actually received by Agent pursuant to such engagement
(excluding amounts received by Agent as reimbursement of expenses).
Section 4.4 Limitation of Liability of Agent. The Company further agrees
that no Indemnified Party shall have any liability (whether direct of indirect,
in contract or tort or otherwise) to the Company for or in connection with
Agent's engagement hereunder except for losses, claims, damages, liabilities or
expenses that a court of competent jurisdiction shall have determined by final
judgment resulted from the gross negligence or willful misconduct of such
Indemnified Party. The indemnity, reimbursement and contribution obligations of
the Company shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company or an
Indemnified Party.
The indemnity, reimbursement, contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange) any party hereto, (iii) any
termination or the completion or expiration of this letter or Agent's engagement
and (iv) whether or not Agent shall, or shall not be called upon to, render any
formal or informal advice in the course of such engagement.
Section 5. Termination.
Section 5.1 Termination by Agent. This Agreement may be terminated at any
time during the Term by Agent by written notice to the Company, if the Company
shall have failed or been unable to comply with any of the terms, conditions or
provisions of the Transaction Agreements to be performed, complied with or
fulfilled by the Company within the respective times, if any, herein provided
for, unless compliance therewith or performance or satisfaction thereof shall
have been expressly waived by Agent in writing.
Section 5.2 Termination by Company. This Agreement may be terminated by
the Company at the conclusion of the Term by notice to Agent if Agent shall have
failed or been unable to comply with any of the terms, conditions or provisions
of this Agreement to be performed, complied with or fulfilled by Agent within
the respective times, if any, herein provided for, unless compliance therewith
or performance or satisfaction thereof shall have been expressly waived by the
Company in writing.
5
Section 5.3 Termination for Force Majeure Events. This Agreement may be
terminated by Agent by notice to the Company at any time, if, in the reasonable,
good faith judgment of Agent, payment for and delivery of the Securities is
rendered impracticable or inadvisable because: (a) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon trading in securities generally; (b) a war or other national
calamity shall have occurred; or (c) the condition of the market (either
generally or with reference to the sale of the Securities to be offered hereby)
or the condition of any matter affecting the Company or any other circumstance
is such that it would be undesirable, impracticable or inadvisable, in the
judgment of Agent, to proceed with this Agreement or with the Offering.
Section 5.4 Termination without Liability. Any termination of this
Agreement pursuant to this Section 5 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Sections 1.3, and all losses, claims, damages or liabilities, joint or several,
under Section 4.1.
Section 6. Miscellaneous.
Section 6.1 Notices. Any notice, consent, waiver, or other communication
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided, that a
copy is mailed by U.S. certified mail, return receipt requested, (c) three (3)
days after being sent by U.S. certified mail, return receipt requested, or (d)
one (1) day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Agent: Sovereign Capital Advisors, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Each party shall provide five (5) days prior written notice to the other
party of any change in address or facsimile number.
6.2 Benefit. This Agreement is made solely for the benefit of Agent and
the Company, their respective officers and directors and any controlling person
referred to in Section 15 of the Securities Act and their respective successors
and assigns, and no other person may acquire or have any right under or by
virtue of this Agreement, including, without limitation, the holders of any
Securities. The term
6
"successor" or the term "successors and assigns" as used in this Agreement shall
not include any purchasers, as such, of any of the Securities.
6.3 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and Agent or the
officers, directors or controlling persons of the Company and Agent as set forth
in or made pursuant to this Agreement and the indemnity agreements of the
Company and Agent contained in Section 4 hereof shall survive and remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company or Agent or any such officer, director or controlling person of the
Company or of Agent; (b) delivery of or payment for the Securities; or (c) the
Closing Date, and any successor of the Company or Agent or any controlling
person, officer or director thereof, as the case may be, shall be entitled to
the benefits hereof.
6.4 Governing Law. The validity, interpretation and construction of this
Agreement will be governed by the laws of the State of New York, without regard
to conflicts of law principles. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
6.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
6.6 Confidential Information. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
6.7 Public Announcements. Prior to the Closing Date, neither party will
issue any public announcement concerning the within transactions without the
approval of the other party.
6.8 Finders. The parties acknowledge that no person has acted as a finder
in connection with the transactions contemplated herein and each will agree to
indemnify the other with respect to any other claim for a finder's fee in
connection with the Offering.
6.9 Recitals. The recitals to this Agreement are a material part hereof,
and each recital is incorporated into this Agreement by reference and made apart
of this Agreement.
7
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the day and year first above written.
[Signatures begin on the following page]
8
COMPANY SIGNATURE PAGE
TO
CONSULTING AGREEMENT
THE COMPANY:
CUMETRIX DATA SYSTEMS CORP
By: Max Toghraie
----------------------------
Name: Max Toghraie
Title: CEO
9
AGENT SIGNATURE PAGE
TO
CONSULTING AGREEMENT
AGENT:
SOVEREIGN CAPITAL ADVISORS, LLC
By:________________________________
▇▇▇▇ ▇▇▇▇
10
CUMETRIX DATA SYSTEMS CORP.
PROMISSORY NOTE
---------------
$500,000 New York, New York
August 9, 2000
FOR VALUE RECEIVED, the undersigned, CUMETRIX DATA SYSTEMS CORP., a
California corporation with offices at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (the "Maker"), unconditionally promises to pay to the order of SOVCAP
EQUITY PARTERS, LTD., a Bahamas corporation (the "Payee"), or its registered
assigns, at its office at c/o Lion Corporate Securities Ltd., Cumberland House
#27, Cumberland Street, P.O. Box N-10818, Nassau, New Providence, The Bahamas or
at such other place as may be designated by the holder hereof in writing, the
principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000), together with
interest, at the rate specified herein, on the unpaid principal amount hereof
from the date hereof and thereafter until this Note has been paid in full.
1. Payments. The Maker agrees to pay the principal of this Note at any
---------
time upon demand from the Payee, together with all accrued but unpaid interest
(calculated as set forth in this Note) to the date of payment on the unpaid
principal amount of this Note; provided, however, that unless any condition or
event set forth in Section 4 has occurred and is continuing, the Payee shall not
be entitled to make demand for payment of this Note on or before September 23,
2000. The Maker shall have the right to prepay this Note in whole at any time
or in part from time to time. All payments by the Maker on account of
principal, premium, interest or fees hereunder shall be made in money of the
United States of America that at the time of payment is legal tender, by wire
transfer of immediately available funds.
2. Interest. The Maker shall pay interest on this unpaid principal
---------
amount of this Note from time to time outstanding, computed on the basis of a
360-day year, at the rate of eleven percent (11%) per annum but in no event
higher than the maximum amount permitted by law.
3. Security. This Note shall be secured pursuant to the terms of a
--------
pledge agreement, dated as of August 9, 2000, between Maker and the Payee, for
itself and as agent for the other holders of a similar series of demand notes.
4. Events of Default. If any of the following conditions or events
-----------------
shall occur and be continuing: (a) the Maker shall default in the payment of
principal of, or any interest on, this Note when the same becomes due and
payable; (b) the Maker shall admit in writing its inability, or be generally
unable, to pay its debts as such debts become due; (c) the Maker shall make a
general assignment for the benefit of creditors; (d) the Maker shall commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect); (e) the Maker shall file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, or adjustment of debts; (f) there
shall have been instituted against the Maker any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings for
relief under the Federal Bankruptcy Code or any other law relating to
bankruptcy, insolvency or adjustment of debts, which are not dismissed within
sixty (60) days after such institution; or (g) the Maker shall take any action
for the purposes of effecting any of the foregoing; then, and in any such event,
the Payee may at any time (unless all defaults shall theretofore have been
remedied) at its option, declare this Note to be due and payable, whereupon this
Note shall forthwith mature and become due and payable, together with interest
accrued thereon, without presentment, demand, protest or notice, all of which
are hereby waived.
5. No Waiver; Rights and Remedies Cumulative. No failure on the part of
-----------------------------------------
the holder of this Note to exercise, and no delay in exercising any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by the holder of this Note of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The rights and
remedies herein provided are cumulative and not exclusive of any remedies or
rights provided by law or by any other agreement between the Maker and the
Payee.
6. Costs and Expenses. The Maker shall reimburse the holder of this
------------------
Note for all costs and expenses incurred by it, and shall pay the reasonable
fees and disbursements of counsel to the holder of this Note, in connection with
the enforcement of the holder's rights hereunder, whether or not legal
proceedings are initiated.
7. Amendments. No amendment, modification or waiver of any provision of
----------
this Note nor consent to any departure by the Maker therefrom shall be effective
unless the same shall be in writing and signed by the holder of this Note and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
8. Governing Law; Jurisdiction and Service of Process. This Note shall be
--------------------------------------------------
governed by and construed in accordance with the laws of the State of
California, without giving effect to conflict of laws. The Maker hereby
irrevocably consents to the jurisdiction of the courts of the State of New York
and of any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with, or simultaneously with, this Note or
a breach of this Note or any such document or instrument. In any such action or
proceeding, the Maker waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 10 of this Note. Within 30 days after such service, or such other time
as may be mutually agreed upon in writing by the attorneys for the parties to
such action or proceeding, the Maker shall appear or answer such summons,
complaint, or other process. Should the Maker so served fail to appear or
answer within such 30-day period or such extended period, as the case may be,
the Maker shall be deemed in default and judgment may be entered by the Payee
against the Maker as demanded in any summons, complaint, or other process so
served.
9. Successors and Assigns. This Note shall be binding upon the Maker
----------------------
and its successors and permitted assigns and the terms hereof shall inure to the
benefit of the Payee and its successors and assigns, including subsequent
holders hereof.
10. Notice. Any notice or other communication required or permitted to be
------
given hereunder shall be in writing and shall be deemed to have been received:
(a) upon hand delivery (receipt acknowledged) or delivery by telecopy or
facsimile (with transmission confirmation report) if delivered on a business day
during normal business hours where such notice is to be received, or the first
business day following such delivery if delivered other than on a business day
during normal business hours where such notice is to be received; or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever first shall occur, to the address
2
set forth above or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 10 except that such
change shall not be effective until actual receipt thereof.
11. Severability. The provisions of this Note are severable, and if any
------------
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
12. Waiver of Notice. The Maker hereby waives presentment, demand for
----------------
payment, protest, notice of protest and all other demands or notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
13. Set-off, Counterclaim. In the event the holder hereof seeks to
---------------------
enforce its rights under this Note, the Maker waives the right to interpose any
set-off or counterclaim of any nature or description against the holder.
14. Headings. The headings in this Note are solely for the convenience of
--------
reference and shall be given no effect in the construction or interpretation of
this Note.
[signature on next page]
3
IN WITNESSETH WHEREOF, the undersigned has duly executed this Note as of
the date first above written.
CUMETRIX DATA SYSTEMS CORP.
By: Max Toghraie
----------------------
Name: Max Toghraie
Title: CEO
4
CUMETRIX DATA SYSTEMS CORP.
PROMISSORY NOTE
---------------
$500,000 New York, New York
August 9, 2000
FOR VALUE RECEIVED, the undersigned, CUMETRIX DATA SYSTEMS CORP., a
California corporation with offices at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (the "Maker"), unconditionally promises to pay to the order of EIG CAPITAL
INVESTMENTS, LTD., a Belize corporation (the "Payee"), or its registered
assigns, at its office at Edifico Marina Marbella, 68 Avda ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ or at such other place as may be designated by the holder
hereof in writing, the principal sum of FIVE HUNDRED THOUSAND DOLLARS
($500,000), together with interest, at the rate specified herein, on the unpaid
principal amount hereof from the date hereof and thereafter until this Note has
been paid in full.
1. Payments. The Maker agrees to pay the principal of this Note at any
---------
time upon demand from the Payee, together with all accrued but unpaid interest
(calculated as set forth in this Note) to the date of payment on the unpaid
principal amount of this Note; provided, however, that unless any condition or
event set forth in Section 4 has occurred and is continuing, the Payee shall not
be entitled to make demand for payment of this Note on or before September 23,
2000. The Maker shall have the right to prepay this Note in whole at any time
or in part from time to time. All payments by the Maker on account of
principal, premium, interest or fees hereunder shall be made in money of the
United States of America that at the time of payment is legal tender, by wire
transfer of immediately available funds.
2. Interest. The Maker shall pay interest on this unpaid principal
---------
amount of this Note from time to time outstanding, computed on the basis of a
360-day year, at the rate of eleven percent (11%) per annum but in no event
higher than the maximum amount permitted by law.
3. Security. This Note shall be secured pursuant to the terms of a
--------
pledge agreement, dated as of August 9, 2000, between Maker and the Payee, for
itself and as agent for the other holders of a similar series of demand notes.
4. Events of Default. If any of the following conditions or events
-----------------
shall occur and be continuing: (a) the Maker shall default in the payment of
principal of, or any interest on, this Note when the same becomes due and
payable; (b) the Maker shall admit in writing its inability, or be generally
unable, to pay its debts as such debts become due; (c) the Maker shall make a
general assignment for the benefit of creditors; (d) the Maker shall commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect); (e) the Maker shall file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, or adjustment of debts; (f) there
shall have been instituted against the Maker any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings for
relief under the Federal Bankruptcy Code or any other law relating to
bankruptcy, insolvency or adjustment of debts, which are not dismissed within
sixty (60) days after such institution; or (g) the Maker shall take any action
for the purposes of effecting any of the foregoing; then, and in any such event,
the Payee may at any time (unless all defaults shall theretofore have been
CUMETRIX DATA SYSTEMS CORP.
PROMISSORY NOTE
---------------
$125,000 New York, New York
August 9, 2000
FOR VALUE RECEIVED, the undersigned, CUMETRIX DATA SYSTEMS CORP., a
California corporation with offices at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (the "Maker"), unconditionally promises to pay to the order of ARAB
COMMERCE BANK LTD., a Cayman Islands corporation (the "Payee"), or its
registered assigns, at its office at ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
or at such other place as may be designated by the holder hereof in writing, the
principal sum of ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($125,000), together
with interest, at the rate specified herein, on the unpaid principal amount
hereof from the date hereof and thereafter until this Note has been paid in
full.
1. Payments. The Maker agrees to pay the principal of this Note at any
---------
time upon demand from the Payee, together with all accrued but unpaid interest
(calculated as set forth in this Note) to the date of payment on the unpaid
principal amount of this Note; provided, however, that unless any condition or
event set forth in Section 4 has occurred and is continuing, the Payee shall not
be entitled to make demand for payment of this Note on or before September 23,
2000. The Maker shall have the right to prepay this Note in whole at any time
or in part from time to time. All payments by the Maker on account of
principal, premium, interest or fees hereunder shall be made in money of the
United States of America that at the time of payment is legal tender, by wire
transfer of immediately available funds.
2. Interest. The Maker shall pay interest on this unpaid principal
---------
amount of this Note from time to time outstanding, computed on the basis of a
360-day year, at the rate of eleven percent (11%) per annum but in no event
higher than the maximum amount permitted by law.
3. Security. This Note shall be secured pursuant to the terms of a
--------
pledge agreement, dated as of August 9, 2000, between Maker and the Payee, for
itself and as agent for the other holders of a similar series of demand notes.
4. Events of Default. If any of the following conditions or events
-----------------
shall occur and be continuing: (a) the Maker shall default in the payment of
principal of, or any interest on, this Note when the same becomes due and
payable; (b) the Maker shall admit in writing its inability, or be generally
unable, to pay its debts as such debts become due; (c) the Maker shall make a
general assignment for the benefit of creditors; (d) the Maker shall commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect); (e) the Maker shall file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, or adjustment of debts; (f) there
shall have been instituted against the Maker any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings for
relief under the Federal Bankruptcy Code or any other law relating to
bankruptcy, insolvency or adjustment of debts, which are not dismissed within
sixty (60) days after such institution; or (g) the Maker shall take any action
for the purposes of effecting any of the foregoing; then, and in any such event,
the Payee may at any time (unless all defaults shall theretofore have been
Officer's Certificate
---------------------
I, _____________, the Secretary of CUMETRIX DATA SYSTEMS CORP., a
California corporation (the "Company"), do hereby certify as follows:
(A) Attached hereto as Exhibit A is a true and complete copy of the
Articles of Incorporation of the Corporation (the "Charter"), as amended to
date and as now in effect, certified or bearing evidence of filing by the
Secretary of State of California;
(B) Attached hereto as Exhibit B is a certificate of Secretary of State of
California, dated as of a recent date as to the due incorporation and good
standing of the Company, the payment of all franchise taxes by the Company, and
listing all documents of the Company on file with said Secretary of State;
(C) Attached hereto as Exhibit C is a true and complete copy of the Bylaws
of the Company as in effect on the date hereof;
(D) Attached hereto as Exhibit D is a true and complete copy of all
resolutions adopted by the Board of Directors or the stockholders of the Company
authorizing the execution, delivery, and performance of Transaction Agreements
(as such terms is defined in the Series 1 Bridge Note Purchase and Security
Agreement (the "Agreement"), dated as of August __, 2000, between the Company
and the purchasers listed on the Purchaser Signature Pages thereto) and the
issuance, sale, and delivery of the Purchased Securities (as defined in the
Agreement), and that all such resolutions are in full force and effect and are
all the resolutions adopted in connection with the foregoing agreements and the
transactions contemplated thereby;
(E) The Charter has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (A) above;
(F) The following named persons are duly elected officers of the
Corporation holding the offices set forth opposite their names, qualified and
acting as such, which persons are authorized to execute the agreements,
instruments and documents referred to in the resolutions attached hereto as
Exhibit A. The signatures appearing opposite the names of such officers are
authentic and genuine, and are, in fact, the signatures of such officers:
Name Office Signature
---- ------ ---------
___________ President and Chief _________________
Executive Officer
___________ Vice President _________________
___________ Secretary _________________
IN WITNESS WHEREOF, I have hereunto set my hand as of the __ day of
August, 2000.
_______________________
___________,
Secretary
I, ______________, an Assistant Secretary of the Corporation, do
hereby certify that _________ is the duly elected Secretary of the Corporation
and that her signature above is her genuine signature.
_______________________
______________
Assistant Secretary
2
September 29, 2000
To each purchaser of Series 1 Bridge Notes issued
pursuant to the Series 1 Bridge Note Purchase and
Security Agreement, dated as of September 29, 2000,
between each purchaser and Cumetrix Data Systems
Corp.
Re: Cumetrix Data Systems Corp.
---------------------------
Ladies and Gentlemen:
We have acted as counsel to Cumetrix Data Systems Corp., a California
corporation (the "Company") and certain of its stockholders, in connection with
the (the "Purchase Agreement") and the transactions contemplated thereby
(collectively, the "Transaction"). This opinion is furnished to you pursuant to
Section 5.2 of the Purchase Agreement in connection with the closing of Series 1
Bridge Financing Notes occurring on September 29, 2000 (the "Closing").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings assigned to such terms in the Purchase Agreement.
In connection with the opinion expressed below, we have examined the
following documents: (i) the Articles of Incorporation and Bylaws of the
Company, each as currently in effect; (ii) relevant minutes of the Board of
Directors of the Company; (iii) a Certificate of Good Standing dated September
26, 2000, from the Secretary of State of the State of California reflecting that
the Company is a corporation in good standing in the State of California; (iv)
the Purchase Agreement; (v) the Bridge Notes and attached Repricing Warrant;
(vi) the Warrants; (vii) the Registration Rights Agreement; (viii) the Escrow
Agreement; (ix) the Irrevocable Transfer Agent Instructions; (x) the Consulting
Agreement between the Company and Sovereign Capital Advisors, LLC ("Sovereign");
(xi) the Warrant (the "Sovereign Warrant") issued by the Company to Sovereign;
and (xii) the Stock Pledge Agreement (the "Stock Pledge Agreement") between
SovCap Equity Partners, Ltd., as agent of the Purchasers ("SovCap"), and the
Company. The agreements referenced in clauses (iv) through (xii) are herein
referred to collectively as the "Transaction Agreements." We have also examined
and considered all the agreements listed as exhibits in the Company's Annual
Report on Form 10-K for the year ended March 31, 2000, which to our knowledge
are the only material agreements to which the Company is a party or by which its
property is bound (the "Material Agreements") and such corporate records,
certificates, and other statements of corporate officers of the Company as we
have deemed appropriate as a basis for our opinions set forth below.
In our examinations, we have assumed the genuineness of all signatures
(other than those of officers of the Company), the authenticity of all documents
submitted to us as originals, the conformity to the original of all conformed
copies, and the authenticity of the originals of all such latter documents. As
to various factual matters material to our opinion, we have relied upon the
representations and warranties of the Company in the Purchase Agreement and the
certificates provided to us by officers of the
Purchasers of the Company's Series 1 Bridge Notes
September 29, 2000
Page 2
Company. We have assumed the accuracy of the factual matters contained therein
and have not attempted to verify independently such representations or
statements contained in such documents or certificates; however, as general
counsel to the Company, nothing has come to our attention which would cause us
to question the accuracy of such representations or statements. Whenever a
statement in our opinion is qualified by "to our knowledge" or similar phrase,
it is intended to indicate that, during the course of our representation of the
Company, no information which would give us current actual knowledge after
reasonable investigation has come to the attention of those attorneys in our
firm who have rendered legal services in connection with the representation
described in the introductory paragraph of this letter (which knowledge is
deemed to be derived solely from reading the documents referred to in the
immediately preceding paragraph, verbal discussions with executive officers of
the Company and review of such of our files as we reasonably believed were
relevant in rendering our opinion).
We have made such investigations of the Federal securities and other
laws and the laws of the States of California and New York as we have deemed
appropriate and necessary for our opinion, and have not reviewed any other laws.
We express no opinion as to the laws of, or the effect or applicability of the
laws of any jurisdiction other than the States of California and New York and
the Federal securities and other laws.
Our opinion is also qualified to the extent that (i) the
enforceability of any provision of any of the Transaction Documents or any of
the rights granted pursuant to any of the Transaction Documents may be subject
to or affected by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting the rights of creditors
generally, and (ii) rights to indemnity under the Transaction Documents may be
limited under applicable Federal securities law. The enforceability of any
provision of any of the Transaction Documents is also subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and we express no opinion as to the
availability of specific performance or any other equitable remedy upon any
breach or threatened breach of any of the covenants, warranties or other
provisions contained in any of the Transaction Documents.
In rendering our opinion, we have assumed that (i) the Transaction
Documents embody the entire agreement among the various parties thereto with
respect to the subject matter thereof and have not been amended by oral or
written agreement or by conduct of the parties, and (ii) each of the parties,
other than the Company, has duly executed and delivered each such Transaction
Document.
Based upon the foregoing, we are of the opinion that:
1. The Company and each subsidiary is a corporation validly existing and
in good standing under the laws of the state in which is was
incorporated, and has the requisite corporate power and authority to
conduct its business, and to own, lease and operate its properties, as
described in its most recently filed SEC Document. To the best of our
knowledge, the Company and each subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in each
jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary and in
which the failure to be so qualified or be in good standing would have
a Material Adverse Effect.
2. (a) The Company has the requisite corporate power and authority to
execute, deliver, and perform the Transaction Agreements to which it
is a party; (b) the execution and delivery of the Transaction
Agreements by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by the
Company's Board of Directors and no
Purchasers of the Company's Series 1 Bridge Notes
September 29, 2000
Page 3
further consent or authorization of the Company, its Board of
Directors, or its stockholders is required under applicable California
law, the Articles of Incorporation or Bylaws of the Company; (c) the
Transaction Agreements have been duly executed and delivered by the
Company; and (d) the Transaction Agreements constitute valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms.
3. The issuance and sale of the Bridge Notes, the Warrants and the
Repricing Warrants (collectively, the "Purchased Securities") has been
duly authorized by the Company. When issued in accordance with the
terms of the Purchase Agreement, the Bridge Notes, the Warrants and
Repricing Warrants, will be validly issued and free of all taxes,
liens charges and preemptive rights or rights of first refusal with
respective to the issuance thereof.
4. The issuance of the Sovereign Warrants has been duly authorized by the
Company. The Sovereign Warrants is validly issued and free of all
taxes, liens charges and preemptive rights or rights of first refusal
with respective to the issuance thereof.
5. All shares of Common Stock (the "Underlying Securities") issuable upon
conversion of the Series 1 Bridge Notes and exercise of the Warrants,
the Repricing Warrants and the Sovereign Warrants have been duly
authorized and reserved for issuance and when issued upon conversion
of the Bridge Notes or the exercise of the Warrants, the Repricing
Warrants or the Sovereign Warrants in accordance with the terms of the
Transaction Agreements, the Underlying Shares will be validly issued,
fully paid and non-assessable, and free of all taxes, liens, charges
and preemptive rights or rights of first refusal, of which we have
acknowledge, with respective to the issuance thereof.
6. As of the date hereof, the authorized and issued capital stock of the
Company was as set forth on Schedule 3.3 to the Purchase Agreement. To
our knowledge, all of such outstanding shares have been validly issued
and are fully paid and nonassessable. Except as disclosed in the
Disclosure Schedule, to our knowledge, no shares of Common Stock or
Preferred Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in the Disclosure Schedules to the
Purchase Agreement, to our knowledge (a) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or
any of its subsidiaries, or contracts, commitments, understandings, or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (b)
there are no outstanding debt securities (other than the Bridge
Notes), and (c) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement). To our knowledge, there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Purchased
Securities, the Sovereign Warrant of the Underlying Securities in the
manner contemplated by the Transaction.
7. Assuming Purchaser's representations, warranties, and covenants set
forth in the Transaction Agreements are true and correct, the
Purchased Securities, the Sovereign Warrant and the
Purchasers of the Company's Series 1 Bridge Notes
September 29, 2000
Page 4
Underlying Securities may be issued to you without registration under
the 1933 Act, the securities laws of any state, or the Trust Indenture
Act of 1939.
8. No authorization, approval, or consent of, or filing with, any court,
governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market, or the stockholders of the Company, or, to
our knowledge, any third party is required to be obtained by the
Company to enter into and perform its obligations under the
Transaction Agreements or for the issuance and sale of the Purchased
Securities, the Sovereign Warrant or and the Underlying Securities as
contemplated by the Transaction Agreements.
9. The execution, delivery, and performance by the Company of the
Transaction Agreements, the consummation by the Company of the
transactions contemplated thereby and compliance by the Company with
the terms thereof does not (a) violate, conflict with, or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under (i) the Articles of Incorporation or Bylaws of
the Company, (ii) any of the Material Agreements or (b) result, in any
violation of any law, known to us to be applicable to the Company, or
any judgments, orders and decrees of which we are aware.
10. To our knowledge, there is no action, suit, proceeding, inquiry, or
investigation before or by any court, public board or body, or any
governmental agency or self-regulatory organization pending or
threatened against or affecting the Company.
11. The Company is not an "investment company" or entity controlled by an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
12. The Stock Pledge Agreement is effective to create, in favor of the
Representative, as agent for the Purchasers, a valid security interest
in the Pledged Stock listed in Schedule I of the Stock Pledge
Agreement under the Uniform Commercial Code as in effect on the date
hereof in the State of California. The security interest in such
Pledged Stock will, upon creation of such security interest, be
perfected by the Representative taking possession of the stock
certificates representing the Pledged Stock and will remain perfected
so long as the Representative retains possession thereof. Assuming
that the Representative takes possession of the stock certificates
representing such Pledged Stock in good faith and without notice of
any adverse claim and in bearer form or in registered form issued to
the Representative or endorsed to the Representative or in blank, the
Representative, on behalf of the Purchasers, will acquire its security
interest in such Pledged Stock free from adverse claims.
We have participated in conferences with executive officers and other
representatives of the Company and representatives of the independent public
accountants for the Company, during which we made inquiries of such executive
officers and representatives and discussed the contents of the Company's Annual
Report on Form 10-K for the year ended March 31, 2000 (the "Form 10-K").
Although we have not undertaken to determine or verify, independently, and are
not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Form 10-K, during
such conferences no facts came to our attention which would lead us to believe
that the Form 10-K at the date they were filed contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (it being
understood that we express no opinion with respect to the financial statements
and schedules and other financial and statistical data included or incorporated
by reference in the Form 10-K).
Purchasers of the Company's Series 1 Bridge Notes
September 29, 2000
Page 5
This opinion is addressed to, and only may be relied upon by, you and
your counsel in connection with the sale of the Purchased Securities, SovCap
Equity Partners, Ltd., as agent under the Pledge Documents and Section 2 of the
Purchase Agreement, Sovereign Capital Advisors, LLC, as a consultant to the
Company and as holder of the Sovereign Warrants, and Continental Stock Transfer
& Trust Company, as the transfer agent of the Common Stock and may not be used
or relied upon by any of the foregoing for any other purpose or by any other
person for any purpose whatsoever without, in each instance, our prior written
consent. It is not to be quoted from, in whole or in part, or otherwise
referred to (except in a list of closing documents), nor is it to be furnished
to any governmental agency (or a representative thereof), without in each
instance our prior written consent.
Very truly yours,
Sichenzia, Ross & ▇▇▇▇▇▇▇▇ LLP
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of September 29, 2000, between Cumetrix Data
Systems Corp., a California corporation (the "Company") and SovCap Equity
Partners, Ltd, a corporation organized under the laws of the Bahamas, as Agent
(the "Agent") for the purchasers (the "Purchasers") listed from time to time on
the Purchaser Signature Pages to the Purchase Agreement (as hereinafter
defined).
A. The Company is issuing, or in the future may issue, up to $1,500,000
principal amount of Series 1 Secured Convertible Bridge Notes (the "Bridge
Notes") pursuant to one or more Series 1 Bridge Note and Security Agreements (as
modified and supplemented and in effect from time to time, collectively, the
"Purchase Agreement").
B. The obligation of the Purchasers to purchase the Bridge Notes is
conditioned upon, among other things, the execution and delivery by the Company
of this pledge agreement.
C. Capitalized terms used herein and not defined herein shall have the
respective meanings assigned to such terms in the Purchase Agreement.
Accordingly, the Company and the Agent hereby agree as follows:
Pledge. As security for the payment and performance in full of the
------
Guaranteed Obligations (as defined below), the Company hereby transfers, grants,
bargains, sells, conveys, hypothecates, pledges, sets over, endorses over, and
delivers unto the Agent, and grants to the Agent, for the benefit of the
Purchasers, a security interest in: (a) the shares of capital stock of the
Company listed in Schedule I annexed hereto (the "Initial Pledged Stock") and
any additional shares of common stock of the Company hereafter pledged by any of
the Company in accordance with the Purchase Agreement (collectively, the Initial
Pledged Stock together with all such additional shares pledged in the future,
the "Pledged Stock"), and (b) subject to Section 5 below, all proceeds of the
Pledged Stock, including, without limitation, all cash, securities or other
property at any time and from time to time receivable or otherwise distributed
in respect of or in exchange for any of or all such Pledged Stock (the items
referred to in clauses (a) and (b) being collectively called the "Collateral").
Upon delivery to the Agent, any securities now or hereafter included in the
Collateral including, without limitation, the Pledged Stock (the "Pledged
Securities") shall be accompanied by undated stock powers duly executed in blank
or other instruments of transfer satisfactory to the Agent and by such other
instruments and documents as the Agent may reasonably request. Each delivery of
Pledged Securities shall be accompanied by a schedule showing a description of
the securities theretofore and then being pledged hereunder, which schedule
shall be attached hereto as Schedule I and made a part hereof. Each schedule so
delivered shall supersede any prior schedules so delivered. For purposes of
this Agreement, "Guaranteed Obligations" means all Obligations, including,
without limitation, all amounts owing by the Company to any Purchaser or the
Agent under the Bridge Notes, this Agreement, the Purchase Agreement or any
other Transaction Agreement, whether for principal or interest (including,
without limitation, interest accruing before, during or after any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding, and, if interest ceases to accrue by operation of law by
reason of any such proceeding, interest which otherwise would have accrued in
the absence of such proceeding), and in each case whether or not recovery may be
or hereafter may become barred by any statute of limitations, whether
enforceable or unenforceable as against the Company, now or hereafter existing,
or due or to become due (collectively, together with all costs and expenses
("Costs"), including, without limitation, all court costs and reasonable
attorneys' fees and expenses, paid or incurred by the Agent (a) in endeavoring
to collect all or any part of the Guaranteed Obligations from, or in prosecuting
any action against, any the Company or
(b) in endeavoring to realize upon (whether by judicial, nonjudicial or other
proceedings) any collateral securing any liabilities of the Company under this
Agreement..
1. Delivery of Collateral. The Company agrees to deliver promptly or
----------------------
cause to be delivered to the Agent any and all Pledged Securities, and any and
all certificates or other instruments or documents representing any of the
Collateral (together with any necessary endorsement).
2. Representations Warranties and Covenants. The Company hereby
----------------------------------------
represents, warrants and covenants to and with the Agent that:
(a) except for the security interest granted to the Agent, the
Company (i) is and, subject to the provisions of the Purchase Agreement, will at
all times continue to be the direct owner, beneficially and of record, of the
Pledged Securities that it is pledging hereunder, (ii) holds the Collateral that
it is pledging hereunder free and clear of all Liens, charges, encumbrances and
security interests of every kind and nature, (iii) will make no assignment,
pledge, hypothecation or, subject to the provisions of the Purchase Agreement,
transfer of, or create any security interest in, the Collateral that it is
pledging hereunder, and (iv) subject to Section 5 below, will cause any and all
Collateral, whether for value paid by a the Company or otherwise, to be
forthwith deposited with the Agent and pledged or assigned hereunder;
(b) the Company (i) has good right and legal authority to pledge the
Collateral it is pledging hereunder in the manner hereby done or contemplated,
(ii) will not amend, modify or supplement any Pledged Security without the prior
written consent of the Agent, and (iii) will defend its title or interest
thereto or therein against any and all attachments, liens, claims, encumbrances,
security interests or other impediments of any nature, however arising, of all
persons whomsoever;
(c) no consent or approval of any governmental body or regulatory
authority or any securities exchange was or is necessary to the validity of the
pledge effected hereby;
(d) by virtue of the execution and delivery by the Company of this
Agreement, when the certificates, instruments or other documents representing or
evidencing the Collateral are delivered to the Agent in accordance with this
Agreement, the Agent will obtain a valid and perfected first lien upon and
security interest in such Collateral as security for the repayment of the
Guaranteed Obligations, prior to all other liens and encumbrances thereon and
security interests therein;
(e) the pledge effected hereby is effective to vest in the Agent the
rights of the Agent in the Collateral as set forth herein; and
(f) all representations, warranties and covenants of the Company
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement until the termination of this Agreement pursuant
to Section 14 hereof.
3. Registration in Nominee Name; Denominations. Upon the occurrence and
-------------------------------------------
during the continuance of an Event of Default, the Agent shall have the right
(in its sole and absolute discretion with subsequent notice to the Company) to
transfer to or to register the Pledged Securities in its own name or the name of
its nominee. In addition, the Agent shall at all times have the right to
exchange the certificates representing Pledged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Agreement.
2
4. Voting Rights; Dividends; etc.
-----------------------------
(a) Unless and until an Event of Default hereunder shall have
occurred and be continuing:
(i) The Company shall be entitled to exercise any and all
voting and/or consensual rights and powers accruing to an owner of Pledged
Securities or any part thereof for any purpose not inconsistent with the terms
of this Agreement and the Purchase Agreement provided that such action would not
adversely affect the rights inuring to the Agent or the Purchasers under this
Agreement or the Purchase Agreement or adversely affect the rights and remedies
of the Agent or the Purchasers under this Agreement or the Purchase Agreement or
the ability of the Agent or the Purchasers to exercise the same.
(ii) The Agent shall execute and deliver to the Company, or
cause to be executed and delivered to the Company, all such proxies, powers of
attorney, and other instruments as the Company may reasonably request for the
purpose of enabling the Company to exercise the voting and/or consensual rights
and powers which they are entitled to exercise pursuant to subparagraph (i)
above.
(iii) The Company shall be entitled to receive and retain any and
all cash dividends paid on the Pledged Securities only to the extent that such
cash dividends are permitted by, and otherwise paid in accordance with the terms
and conditions of, Section 7.3 of the Purchase Agreement and applicable laws.
Any and all (a) noncash dividends, (b) stock or dividends paid or payable in
cash or otherwise in connection with a partial or total liquidation or
dissolution, and (c) instruments, securities, other distributions in property,
return of capital, capital surplus or paid-in surplus or other distributions
made on or in respect of Pledged Securities (other than dividends permitted by
this Section 5(a)(iii)), whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the outstanding
capital stock of the issuer of any Pledged Securities or received in exchange
for Pledged Securities or any part thereof, or in redemption thereof, as a
result of any merger, consolidation, acquisition or other exchange of assets to
which such issuer may be a party or otherwise, shall be and become part of the
Collateral, and, if received by the Company, shall not be commingled by any the
Company with any of its other funds or property but shall be held separate and
apart therefrom, shall be held in trust for the benefit of the Agent and the
Purchasers and shall be forthwith delivered to the Agent in the same form as so
received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of any the Company to receive any dividends which the
Company is authorized to receive pursuant to paragraph (a)(iii) of this Section
5 shall cease, and all such rights shall thereupon become vested in the Agent,
which shall have the sole and exclusive right and authority to receive and
retain such dividends. All dividends which are received by any the Company
contrary to the provisions of this Section 5(b) shall be received in trust for
the benefit of the Agent, shall be segregated from other property or funds of
the Company and shall be forthwith delivered to the Agent as Collateral in the
same form as so received (with any necessary endorsement). Any and all money and
other property paid over to or received by the Agent pursuant to the provisions
of this Section 5 shall be retained by the Agent in an account to be established
by the Agent upon receipt of such money or other property and shall be applied
in accordance with the provisions of Section 8 hereof.
(c) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Company to exercise the voting and consensual rights
and powers which it is entitled to exercise pursuant to Section 5(a)(i) shall
cease, and all such rights shall thereupon become vested in the Agent, which
shall have the sole and exclusive right and authority to exercise such voting
and consensual rights and powers.
3
6. Issuance of Additional Stock. The Company agrees that it will not
----------------------------
issue any stock or other securities, whether in addition to, by stock dividend
or other distribution upon, or in substitution for, the Pledged Securities or
otherwise.
7. Remedies Upon Event of Default. If an Event of Default shall have
------------------------------
occurred and be continuing and the Guaranteed Obligations shall not have been
paid in full, the Agent may sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the Agent
shall deem appropriate. Each such purchaser at any such sale shall hold the
property sold absolutely, free from any claim or right on the part of the
Company, and the Company hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which the Company now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Agent shall give the Company 10 days' written notice (which the
Company agrees is reasonable notice within the meaning of Section 9-504(3) of
the Uniform Commercial Code as in effect in New York on the date hereof) of the
Agent's intention to make any sale of Collateral. Such notice, in the case of a
public sale, shall state the time and place for such sale and, in the case of a
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Collateral,
or portion thereof, will first be offered for sale at such board or exchange.
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Agent may fix and state in the
notice (if any) of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Agent may (in its sole and absolute discretion) determine. The
Agent shall not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Agent until the sale price is paid by the purchaser or purchasers thereof, but
the Agent shall not incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may be sold again upon like notice. At any public
sale made pursuant to this Section 7, Agent or any Purchaser may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay or appraisal on the part of the Company (all said rights being also hereby
waived and released to the extent permitted by law), with respect to the
Collateral or any part thereof offered for sale and Agent or any such Purchaser
may make payment on account thereof by using any claim then due and payable to
Agent or any such Purchaser from the Company as a credit against the purchase
price, and Agent or any such Purchaser may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to the Company therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Agent shall be free to carry out such sale and purchase pursuant to such
agreement, and the Company shall not be entitled to the return of the Collateral
or any portion thereof subject thereto, notwithstanding the fact that after the
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Guaranteed Obligations paid in full. As an alternative to
exercising the power of sale herein conferred upon it, the Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a court-
appointed receiver.
8. Application of Proceeds of Sale. The proceeds of any sale of
-------------------------------
Collateral, as well as any Collateral consisting of cash, shall be applied by
the Agent in the following order:
4
(1) to the reasonable expenses incurred in effecting such
recovery or in enforcing any right or remedy under this Agreement, the
Guaranty or any of the other Transaction Agreements, and any other expenses
theretofore incurred by the Agent and not previously reimbursed by the
Company;
(2) to accrued interest, payable by the Company, according to
Purchaser's Proportionate Share of the accrued interest on the Bridge
Notes; and
(3) to the unpaid principal of the Bridge Notes with each
Purchaser receiving such Purchaser's Proportionate Share of such principal.
(4) after all amounts required to be paid pursuant to this
Agreement have been paid in full, to the payment to the Company or their
heirs, executors, administrators, successors or assigns, or as a court of
competent jurisdiction may direct, of any surplus then remaining.
9. Agent Appointed Attorney-In-Fact. The Company hereby appoints the
--------------------------------
Agent its attorney-in-fact for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which the
Agent may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, the Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, with full power of
substitution either in the Agent's name or in the name of the Company, to ask
for, demand, ▇▇▇ for, collect, receive receipt and give acquittance for any and
all moneys due or to become due and under and by virtue of any Collateral, to
endorse checks, drafts, orders and other instruments for the payment of money
payable to the applicable the Company representing any interest or dividend, or
other distribution payable in respect of the Collateral or any part thereof or
on account thereof and to give full discharge for the same, to settle,
compromise, prosecute or defend any action, claim or proceeding with respect
thereto, and to sell, assign, endorse, pledge, transfer and make any agreement
respecting, or otherwise deal with, the same; provided, however, that nothing
herein contained shall be construed as requiring or obligating the Agent or the
Purchasers to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Agent or the Purchasers, or to
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Agent or the
Purchasers or omitted to be taken with respect to the Collateral or any part
thereof shall give rise to any defense, counterclaim or offset in favor of the
Company or to any claim or action against the Agent or the Purchasers in the
absence of the gross negligence or willful misconduct of the Agent or the
Purchasers.
10. No Waiver. No failure on the part of the Agent to exercise, and no
---------
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Agent preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Agent and the Purchasers shall not be deemed to have waived any rights hereunder
or under any other agreement or instrument unless such waiver shall be in
writing and signed by such parties.
11. Registration, etc. The Company agrees that, upon the occurrence and
-----------------
during the continuance of an Event of Default hereunder, if for any reason the
Agent desires to sell any of the Pledged Securities at a public sale, it will,
at any time and from time to time, upon the written request of the Agent, take
or to cause the issuer of such Pledged Securities to take such action and to
prepare,
5
distribute and/or file such documents, as are required or advisable in the
opinion of counsel for the Agent to permit the public sale of such Pledged
Securities. The Company further agrees to indemnify, defend and hold harmless
the Agent and the Purchasers and any underwriter and their respective officers,
directors, affiliates and controlling persons (within the meaning of Section 20
of the Securities Exchange Act of 1934) from and against all loss, liability,
expenses, costs, fees and disbursements of counsel (including, without
limitation, a reasonable estimate of the cost to the Agent of legal counsel),
and claims (including the costs of investigation) which they may incur insofar
as such loss, liability, expense or claim arises out of or is based upon any
untrue statement of a material fact contained in any prospectus (or any
amendment or supplement thereto) or in any notification or offering circular, or
arises out of or is based upon any omission to state a material fact required to
be stated therein or necessary to make the statements in any thereof not
misleading, except insofar as the same arises out of any untrue statement or
omission based upon information furnished in writing to the Company or the
issuer of such Pledged Securities by the Agent, any Purchaser or the underwriter
expressly for use therein. The Agent (with respect to such information furnished
by it) or such Purchaser (with respect to such information furnished by it)
shall indemnify, defend and hold harmless the Company or the issuer or such
Pledged Securities and their respective officers, directors, affiliates and
controlling persons (within the meaning of Section 20 of the Securities Exchange
Act of 1934) upon the same terms as are applicable to the Company pursuant
hereto. The Company further agrees to use its best efforts to qualify, file or
register, or cause the issuer of such Pledged Securities to qualify, file or
register, any of the Pledged Securities under the blue sky or other securities
laws of such states as may be requested by the Agent and keep effective, or
cause to be kept effective, all such qualifications, filings or registrations.
The Company will bear all costs and expenses of carrying out its obligations
under this Section 11. The Company acknowledges that there is no adequate remedy
at law for failure by it to comply with the provisions of this Section 11 and
that such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 11 may be specifically
enforced.
12. Security Interest Absolute. All rights of the Agent hereunder, the
--------------------------
grant of a security interest in the Collateral and all obligations of the
Company hereunder, shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of any of the Transaction Agreements, any
agreement with respect to any of the Guaranteed Obligations or any other
agreement or instrument relating to any of the foregoing, (ii) any change in
time, manner or place of payment of, or in any other term of, all or any of the
Guaranteed Obligations, or any other amendment or waiver of or any consent to
any departure from any of the Transaction Agreements or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any other
collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Guaranteed Obligations or (iv) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Company in respect of the Guaranteed Obligations or in respect
of this Agreement.
13. Agent's Fees and Expenses. The Company shall, upon demand, pay to the
-------------------------
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts or agents which the Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent hereunder, or (iv) the failure by the Company to
perform or observe any of the provisions hereof. In addition, the Company shall
indemnify and hold the Agent and the Purchasers harmless from and against any
and all liability incurred by the Agent or the Purchasers hereunder or in
connection herewith, unless such liability shall be due to the gross negligence
or willful misconduct of the Agent or the Purchasers, as the case may be. Any
such amounts payable as provided hereunder or thereunder shall be additional
Guaranteed Obligations secured hereby and by the Purchase Agreement.
6
14. Termination. This Agreement shall terminate when all the Bridge Notes
-----------
or converted into shares of Common Stock and the other Guaranteed Obligations
have been fully and indefeasibly paid in cash, at which time the Agent shall
reassign and deliver to the Company, or to such person or persons as the Company
shall designate, against receipt, such of the Collateral (if any) as shall not
have been sold or as is otherwise still be held by it hereunder, together with
appropriate instruments of reassignment and release; provided, however, that all
indemnities of the Company contained in this Agreement shall survive, and remain
operative and in full force and effect regardless of, the termination of this
Agreement. Any such reassignment shall be without recourse to or warranty by the
Agent and at the expense of the Company.
15. Notices. Any notice, consent, waiver, or other communication required
-------
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (a) upon receipt, when delivered
personally, (b) upon receipt, when sent by facsimile, provided, that a copy is
mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
(a) if to the Company,., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy (which shall not constitute
notice) to Sichenzia, Ross & ▇▇▇▇▇▇▇▇ LLP, 135 West 5oth Street, ▇▇/▇▇/ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇; Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq., Facsimile (212) 664-
7329.
(b) if to the Agent, to c/o Lion Corporate Securities Ltd., Cumberland
House #27, Cumberland Street, P.O. Box N-10818, Nassau, New Providence, The
Bahamas, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇; with copies (which shall not constitute
notice) to SovCap Investment Management Group, LLC, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇, Facsimile: (404)
812-3738; and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ & Kuh, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., Facsimile (212)
972-9150; and
(c) if to any Purchaser, at the address set forth below its name on
such Purchaser's Signature Page to the Purchase Agreement, to the such
Purchaser's legal counsel as set forth on such Purchaser's Signature Page to
the Purchase Agreement.
Each party shall provide five (5) days prior written notice to the other party
of any change in address or facsimile number.
16. Further Assurances. The Company agrees to do such further acts and
------------------
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as the Agent may at any time reasonably request in
connection with the administration and enforcement of this Agreement or with
respect to the Collateral or any part thereof or in order better to assure and
confirm unto the Agent its rights and remedies hereunder.
17. Binding Agreement; Assignments. This Agreement, and the terms,
------------------------------
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
the Company shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or otherwise pledge, encumber
or grant any option with respect to the Collateral, or any part thereof, or any
cash or property held by the Agent as Collateral under this Agreement.
7
18. Governing Law. The corporate laws of the State of California shall
-------------
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
19. Entire Agreement; Waiver of Jury Trial, etc.
-------------------------------------------
(a) This Agreement and the other Transaction Agreements constitute
the entire contract between the parties hereto relative to the subject matter
hereof. Any previous agreement among the parties hereto with respect to the
transactions contemplated by the Purchase Agreement is superseded by this
Agreement, the Purchase Agreement and the other Transaction Agreements. Except
as expressly provided herein or in the other Transaction Agreements, nothing in
this Agreement or in the other Transaction Agreements, expressed or implied, is
intended to confer upon any party, other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement the
other Transaction Agreements.
(b) Except as prohibited by law, each party hereto hereby waives any
right it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with this Agreement and the
other Transaction Agreements.
(c) Except as prohibited by law, each party hereto hereby waives any
right it may have to claim or recover in any litigation referred to in paragraph
(b) of this Section 19, any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages.
(d) Each party hereto (i) certifies that no representative, agent or
attorney of the Agent or any Purchaser has represented, expressly or otherwise,
that the Agent or such Purchaser would not, in the event of litigation, seek to
enforce the foregoing waivers and (ii) acknowledges that it has been induced to
enter into this Agreement or the other Transaction Agreements, as applicable,
by, among other things, the mutual waivers and certifications herein.
20. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the respective heirs, executors, administrators, successors
and permitted assigns of each Guarantor, the Agent and the Purchasers.
21. Waivers, Amendments, etc. The provisions contained herein are for the
------------------------
benefit of the Purchasers and their respective successors and assigns and may
not be rescinded or canceled or modified
8
in any way, nor, unless otherwise expressly provided for herein, may any
provision of this Agreement be waived or changed without the express prior
written consent thereto of the Agent.
22. Survival. All covenants, agreements, representations and warranties
--------
made by the Company herein and in the certificates or other instruments prepared
or delivered in connection with this Agreement shall be considered to have been
relied upon by the Purchasers and shall survive the purchase by the Purchasers
of Bridge Notes and the execution and delivery to the Purchasers of the Purchase
Agreement.
23. Counterparts; Facsimile Signatures. This Agreement may be executed in
----------------------------------
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective
when copies hereof which, when taken together, bear the signatures of each of
the parties hereto shall be delivered to the Agent. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed signature page hereto.
24. Severability. In case any one or more of the provisions contained in
------------
this Agreement should be invalid, illegal or unenforceable in any respect, the
remaining provisions contained herein shall not in any way be affected or
impaired.
25. Joint and Several Obligations. The obligations of each of the
-----------------------------
Guarantors contained herein shall be joint and several.
26. Section Headings. Section headings used herein are for convenience of
----------------
reference only and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
[Signatures on the following page]
9
THE COMPANY SIGNATURE PAGE
TO
PLEDGE AGREEMENT
THE COMPANY:
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
------------------------------
Name: Max Toghraie
Title: CEO
10
AGENT SIGNATURE PAGE
TO
PLEDGE AGREEMENT
AGENT:
SOVCAP EQUITY PARTNERS, LTD.,
as Agent
By:_________________________
Name:
Title:
11
SCHEDULE I
TO PLEDGE AGREEMENT
-------------------------------------------------------------------------------------------
Pledgor Class of Stock Stock Certificate No(s). Number of Shares
-------------------------------------------------------------------------------------------
Cumetrix Data Systems Corp. Common Stock
-------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED
UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
CUMETRIX DATA SYSTEMS CORP.
SERIES 1 BRIDGE FINANCING NOTE
No. S1BFN-__ $___,000.00 September 29, 2000
CUMETRIX DATA SYSTEMS CORP., a California corporation (such corporation, or
any successor permitted hereunder, the "Company"), for value received, hereby
promises to pay to [HOLDER NAME], a [resident of the State of] ______
[corporation] [limited liability company] or any subsequent holder hereof (such
holder or any registered assignee, the "Holder"), upon demand (the "Demand
Date") of Holder, at any time after one hundred eighty (180) days following the
Original Issue Date (as defined below), the principal sum of ___ THOUSAND
DOLLARS (US $____,000.00), and to pay interest on such principal sum, at the
rate of eight percent (8%) per annum (the "Note Rate") from the Original Issue
Date (as defined below) until the Demand Date and at the rate of twelve percent
(12%) per annum (the "Default Rate") on and after the Demand Date until payment
of all principal, premium, and accrued and unpaid interest has been paid in
full. All such interest shall be computed on the basis of the actual number of
days elapsed during any interest period in a year of 360 days. The date on which
this Series 1 Bridge Note shall have first been issued is referred to herein as
the "Original Issue Date."
Section 1. Description. This Series 1 Bridge Note is one of a series of
Series 1 Bridge Financing Notes that have been authorized by the Company (the
"Series 1 Bridge Notes") and are alike except for principal amount and issue
date, and are in registered form. This Series 1 Bridge Note is convertible, into
shares of the Company's common stock, without par value (the "Common Stock"), as
provided herein, and, effective upon any such conversion, the Common Stock so
issued shall be subject to all terms and conditions and shall enjoy all rights,
privileges, and preferences applicable to such Common Stock under the Company's
Articles of Incorporation (the "Certificate of Incorporation"). The shares of
Common Stock issuable upon conversion of this Series 1 Bridge Note (the
"Conversion Shares") are entitled to registration rights pursuant to a
Registration Rights Agreement dated as of September 29, 2000 (the "Registration
Rights Agreement"). The Series 1 Bridge Notes are secured by certain collateral
having a value of approximately 200% of the aggregate principal amount of all of
the Series 1 Bridge Notes issued pursuant to the terms of (i) a Series 1 Bridge
Note Purchase and Security Agreement dated as of September 29, 2000 (the
"Purchase Agreement"), and (ii) a Pledge Agreement dated as of September 29,
2000, and are otherwise entitled to all of the rights and benefits thereunder.
Section 2. Office for Registration and Conversion. The Company shall
maintain an office where this Series 1 Bridge Note shall be surrendered or
presented for registration of transfers or exchanges and conversions. This
office will initially be located at the offices of the Company at ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Company shall keep a register of the
Series 1 Bridge Notes and of their transfer and exchange, including the names
and addresses of Holders of the Series 1 Bridge Notes. Holder shall give the
Company notice of any change in Holder's address to the office indicated in this
Section 2. Upon two (2) Business Days written request, the Company shall permit
Holder or its duly authorized representatives to inspect such register. Upon
written notice to Holder, the Company may change the address of the office to be
maintained by the Company pursuant to this
Section 2 or appoint one or more co-registrars, stock registrars, paying agents,
or conversion agents to assist the Company in performing its functions under the
Series 1 Bridge Notes.
Section 3. Redemption; Conversion.
(a) Redemption by Conversion at the Option of the Company. At
any time and from time to time on or prior to the Demand Date and provided that
on the Redemption Date (as defined below) a registration statement (a
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") is effective covering the resale by Holder of all of the Conversion
Shares, the Company may, at its option, redeem the then outstanding principal
amount of this Series 1 Bridge Note at the Demand Date Redemption Price (as
defined below) by conversion of this Series 1 Bridge Note into such number of
shares of Common Stock as is specified in Section 5. To effect a redemption
pursuant to this Section 3(a), the Company shall give notice (a "Company
Conversion Notice") to Holder, which notice shall state that the Company has
elected to pay the redemption price by conversion of this Series 1 Bridge Note
into Common Stock. Within two (2) Business Days of the date of the Company
Conversion Notice, the Company shall tender to Holder, as specified in the
Company Conversion Notice, Conversion Shares (in the manner contemplated by
Section 6). The "Demand Date Redemption Price" shall be equal to 120.0% of the
then outstanding principal amount of this Series 1 Bridge Note plus accrued and
unpaid interest thereon through and including the date the payment is disbursed
(whether by issuance of Conversion Shares or a payment in cash).
(b) Redemption at the Option of Holder. At any time and from
time to time after the Demand Date, Holder may, at its option, make demand to
the Company to redeem, all or any part of the then outstanding principal under
this Series 1 Bridge Note at a price equal to Demand Date Redemption Price. Such
demand shall specify Holder's election to accept payment of the redemption price
in cash or by conversion of this Series 1 Bridge Note into such number of shares
of Common Stock as is specified in Section 5. Within two (2) Business Days of
the date of such notice, the Company shall tender to Holder, as specified in
Holder's notice, either (A) cash or (B) Conversion Shares (in the manner
contemplated by Section 6). The date of any redemption under either paragraph
(a) or (b) above shall be referred to as a "Redemption Date."
(c) Cash Redemption at the Option of the Company. At any time
and from time to time on or prior to the Demand Date, the Company may, at its
option, redeem (such redemption being the "Voluntary Redemption"), all or a
portion of this Series 1 Bridge Note for cash, under and in accordance with the
following terms and procedures:
(i) The redemption price shall equal that portion of the
principal of this Series 1 Bridge Note being redeemed multiplied by the
redemption premium set forth below plus all accrued and unpaid interest on
the principal amount of that portion of this Series 1 Bridge Note being
redeemed (the "Voluntary Redemption Price") through and including the
Voluntary Redemption Date (as defined below):
2
Redemption Date Redemption Premium
Original Issue Date through and including the 45th day after the Original 105.0%
Issue Date
46th day after the Original Issue Date through and including the 90th day 110.0%
after the Original Issue Date
91st day after the Original Issue Date through and including the 135th day 115.0%
after the Original Issue Date
136th day after the Original Issue Date through and including the 180th 120.0%
day after the Original Issue Date
(ii) At least ten (10) days prior to a Voluntary
Redemption, the Company shall mail a notice of redemption to Holder,
stating (A) the redemption date, which shall be a business day in New York,
New York (the "Voluntary Redemption Date"), (B) the aggregate principal
amount of this Series 1 Bridge Note to be redeemed, (C) the Voluntary
Redemption Price, and (D) the name and address of the person to whom this
Series 1 Bridge Note must be presented to receive payment if required
pursuant to subparagraph (iv) below. Once notice of redemption is mailed
and the Company shall have complied with subparagraph (iii) below, the
Voluntary Redemption Price shall become due and payable on the Voluntary
Redemption Date.
(iii) On or before the third (3rd) day prior to the
Voluntary Redemption Date, the Company shall deposit into a bank trust
account for the benefit of Holder money sufficient to pay the Redemption
Price and all accrued and unpaid interest.
(iv) The Company may, at its option, require as a condition
to the receipt of a payment pursuant to this Section 3(c) that Holder
present the Series 1 Bridge Notes to the bank specified in subparagraph
(ii) above for surrender.
(d) Issuance of Repricing Warrants. Upon issuance of any shares
of Common Stock to Holder upon redemption or conversion of all or any portion of
this Series 1 Bridge Note, Holder shall be entitled to receive Repricing
Warrants in accordance with the Repricing Warrant attached hereto as Attachment
1.
3
Section 4. Method of Payment.
(a) Interest accruing through and including the Demand Date
shall be computed at the Note Rate. Interest accruing after the Demand Date
shall be computed at the Default Rate. Accrued and unpaid interest shall be due
and payable at the time the principal of, and premium, if any, on this Series 1
Bridge Note is paid. All such interest shall be computed on the basis of the
actual number of days elapsed during any interest period in a year of 360 days.
Interest shall begin to accrue on the Original Issue Date. Notwithstanding
anything to the contrary contained in this Note, interest, including any amounts
may be considered interest, shall not accrue or be payable at a rate in excess
of the maximum amount payable by law.
(b) The Company shall pay interest and principal on this Series
1 Bridge Note (except defaulted interest) to registered Holder on the day on
which the interest or principal payment is due.
(c) The Company shall pay interest by check payable in money of
the United States of America that at the time of payment is legal tender for
public and private debts. Payments of interest shall be mailed to Holder's
address shown in the register maintained pursuant to Section 2; provided,
however, that with respect to the final payment of principal and accrued and
unpaid interest necessary to pay this Series 1 Bridge Note in full, to receive
such payment Holder must surrender this Series 1 Bridge Note for cancellation to
the Company or to a paying agent appointed by the Company. Principal and
interest shall be considered paid on the date due, and no interest shall accrue
thereafter, if there is on deposit on that date, in a bank trust account for the
benefit of Holder, money sufficient to pay the Redemption Price and all accrued
and unpaid interest due under this Series 1 Bridge Note.
Section 5. Conversion Price and Adjustments.
(a) At any time after the Demand Date, Holder may convert all or
any portion of the principal amount of this Series 1 Bridge Note into shares of
Common Stock.
(b) If Holder elects to convert less than the full principal
amount of this Series 1 Bridge Note, such conversion shall be permitted only in
one hundred (100) share increments unless the Company has given its
contemporaneous consent to conversion of an odd lot. The provisions hereof that
apply to conversion of the entire principal amount of this Series 1 Bridge Note
shall also apply to conversion of a portion of the principal amount. Upon
surrender of the Series 1 Bridge Note for conversion in part, the Company shall
issue new Series 1 Bridge Notes in substantially the same form as this Series 1
Bridge Note, except that the principal amount shall be reduced by the principal
amount so converted (exclusive of the redemption premium).
(c) The number of shares of Common Stock (rounded up to the
nearest whole number) issuable in payment of the Mandatory Redemption Price or
the Voluntary Redemption Price (the applicable redemption price hereinafter
referred to as, the "Redemption Price") shall be equal to the quotient of the
applicable Redemption Price divided by $2.00 (the "Conversion Price").
(d) Accrued and unpaid interest shall be included in computing
the number of Conversion Shares issuable upon conversion of this Series 1 Bridge
Note. Interest shall cease to accrue on that portion of the Redemption Price
converted from and after the Conversion Date.
Section 6. Procedures for Conversion, and Issuance of Conversion
Shares.
(a) Holders' Delivery Requirements. To convert this Series 1
Bridge Note into Common Stock pursuant to the provisions of Section 5, Holder
shall (A) deliver or transmit by facsimile,
4
a copy of a fully executed notice of conversion in the form attached hereto as
Exhibit A (the "Holder Conversion Notice") to the Company or its designated
Transfer Agent, and (B) surrender to a common carrier for delivery to the
Company or the Transfer Agent as soon as practicable following such date, the
original Series 1 Bridge Note being converted (or an indemnification undertaking
with respect to such Note in the case of the loss, theft, or destruction of the
Series 1 Bridge Note) and the originally executed Holder Conversion Notice. The
date the Company receives the Holder Conversion Note and this Series 1 Bridge
Note is hereinafter referred to as, the "Conversion Date."
(b) Company's Response. Upon receipt by the Company of a
facsimile copy of a Holder Conversion Notice, the Company shall immediately
send, via Facsimile, a confirmation of receipt of such Holder Conversion Notice
to Holder. Upon receipt by the Company or the Transfer Agent of the Series 1
Bridge Note to be converted pursuant to a Holder Conversion Notice, together
with the originally executed Holder Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, within two (2) Business Days following the
date of receipt, (A) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Holder Conversion Notice, a
certificate, registered in the name of Holder or its designee, for the number of
shares of Common Stock to which Holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which such Holder shall be
entitled to Holder's or its designee's balance account at The Depository Trust
Company and if less than the full principal amount of this Series 1 Bridge Note
is being surrendered, return to the Holder a new Series 1 Bridge Note on the
same terms for the unconverted balance of the principal amount hereof..
(c) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Series 1 Bridge Note
shall be treated for all purposes as the "Record Holder" or Holder of such
shares of Common Stock on the Conversion Date.
(d) Company's Failure to Timely Convert. If the Company shall
fail to issue, or cause the issuance, to Holder a certificate for the number of
shares of Common Stock to which each Holder is entitled upon Holder's conversion
of this Series 1 Bridge Note within four (4) Business Days following (i) the
date of receipt by the Company of a Holder Conversion Notice in the event of a
voluntary conversion by Holder pursuant to Section 3(b) or 5 or (ii) the date of
the Company Conversion Note, in the event of conversion at the option of the
Company pursuant to Section 3(a); (collectively, a "Conversion Event"), then, in
addition to all other available remedies which such Holder may pursue hereunder
and under the Purchase Agreement between the Company and the initial holder of
this Series 1 Bridge Note (including indemnification pursuant to Section 6.18
thereof), the Company shall pay as additional damages to Holder on each day
after the date of receipt by the Company for the Conversion Notice or the date
of the Conversion Event until the Conversion Shares are received by Holder, an
amount equal to 1.0% of the product of (A) the number of shares of Common Stock
not issued to Holder and to which Holder is entitled multiplied by (B) the
Closing Bid Price of the Common Stock on the Business Day following the date of
receipt by the Company of the Conversion Notice or the date of the Conversion
Event. Such damages shall be computed and due and payable daily. The foregoing
notwithstanding, Holder at its option may withdraw a Conversion Notice, and
remain a holder of this Series 1 Bridge Note, if Holder has otherwise complied
with this Section 6.
(e) Adjustments to Conversion Price. If (i) any of the events
set forth in Section 7 shall occur which requires a adjustment to the Conversion
Price and (ii) either a Company Conversion Notice or Holder Conversion Notice
(collectively, a "Conversion Notice") has been delivered requiring the delivery
of shares of Common Stock within one (1) day of the effective date of such
event, the Company may defer issuing, delivering, or paying to Holder any
additional shares of Common Stock or check for any cash remainder required by
reason of such adjustment until the occurrence of such event; provided, however,
that the Company delivers to Holder a due ▇▇▇▇ or other appropriate instrument
5
evidencing Holders' right to receive such additional shares or check upon the
occurrence of the event giving rise to the adjustment.
(f) Reservation of Conversion Shares. Until such time as this
Series 1 Bridge Note has been fully redeemed, the Company shall reserve out of
its authorized but unissued Common Stock enough shares of Common Stock to permit
the conversion of the entire unpaid principal amount of this Series 1 Bridge
Note and all accrued and unpaid interest due on this Series 1 Bridge Note at any
time. All shares of Common Stock issued upon conversion of this Series 1 Bridge
Note shall be fully paid and nonassessable. The Company covenants that if any
shares of Common Stock, required to be reserved for purposes of conversion of
this Series 1 Bridge Note hereunder, require registration with or approval of
any governmental authority under any federal or state law or listing upon any
national securities exchange before such shares may be issued upon conversion,
the Company shall in good faith, as expeditiously as possible, endeavor to cause
such shares to be duly registered, approved or listed, as the case may be.
Section 7. Adjustments to Conversion Price. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) In the event the Company is a party to a consolidation,
share exchange, or merger, or the sale of all or substantially all of the
assets of the Company to, any person, or in the case of any consolidation
or merger of another corporation into the Company in which the Company is
the surviving corporation, and in which there is a reclassification or
change of the shares of Common Stock of the Company, this Series 1 Bridge
Note shall after such consolidation, share exchange, merger, or sale be
exercisable for the kind and number of securities or amount and kind of
property of the Company or the corporation or other entity resulting from
such share exchange, merger, or consolidation, or to which such sale shall
be made, as the case may be (the "Successor Company"), to which a holder of
the number of shares of Common Stock deliverable upon the conversion
(immediately prior to the time of such consolidation, share exchange,
merger, or sale) of this Series 1 Bridge Note would have been entitled upon
such consolidation, share exchange, merger, or sale; and in any such case
appropriate adjustments shall be made in the application of the provisions
set forth herein with respect to the rights and interests of the registered
Holder, such that the provisions set forth herein shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in
relation to the number and kind of securities or the type and amount of
property thereafter deliverable upon the exercise of this Series 1 Bridge
Note. The above provisions shall similarly apply to successive
consolidations, share exchanges, mergers, and sales. Any adjustment
required by this Section 7(a) because of a consolidation, share exchange,
merger, or sale shall be set forth in an undertaking delivered to the
registered Holder and executed by the Successor Company which provides that
Holder shall have the right upon conversion of this Series 1 Bridge Note to
receive the kind and number of securities or amount and kind of property of
the Successor Company or to which the holder of a number of shares of
Common Stock deliverable upon conversion (immediately prior to the time of
such consolidation, share exchange, merger, or sale) of this Series 1
Bridge Note would have been entitled upon such consolidation, share
exchange, merger, or sale.
(b) In the event the Company should at any time, or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a stock split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock, or securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
6
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or exercise thereof), then,
as of such record date (or the date of such dividend, distribution, split,
or subdivision if no record date is fixed), the number of shares of Common
Stock issuable upon conversion hereof shall be proportionately increased by
the same proportion as the increase in the number of outstanding Common
Stock Equivalents of the Company resulting from the dividend, distribution,
split, or subdivision. Notwithstanding the preceding sentence, no
adjustment shall be made to decrease the Conversion Price below $.001 per
share.
(c) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a reverse stock split, or a transaction having a similar effect on the
number of outstanding shares of Common Stock of the Company, then, as of
such record date (or the date of such reverse stock split or similar
transaction if no record date is fixed), the number of shares of Common
Stock issuable upon the conversion hereof shall be proportionately
decreased by the same proportion as the decrease of the number of
outstanding Common Stock Equivalents resulting from the reverse stock split
or similar transaction.
(d) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for a
reclassification of its Common Stock, then, as of such record date (or the
date of the reclassification if no record date is set), this Series 1
Bridge Note shall thereafter be convertible into such number and kind of
securities as would have been issuable as the result of such
reclassification to a holder of a number of shares of Common Stock equal to
the number of shares of Common Stock issuable upon the conversion hereof
immediately prior to such reclassification.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the Series 1 Bridge Note, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the
rights of Holder against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (x) will not create a par value of
any share of stock receivable upon the exercise of the Series 1 Bridge Note
above the amount payable therefor upon such exercise, and (y) will take all
such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and non-assessable shares upon the
exercise of the Series 1 Bridge Note.
Section 8. Notices. The Company shall give the following notices at the
times specified:
(a) Immediately upon any adjustment of the Conversion Price, the
Company will give notice thereof to Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company will give notice to Holder, at least twenty (20)
days prior to the date on which the Company closes its books or takes a
record (i) with respect to any dividend or distribution upon the Common
Stock, (ii) with respect to any pro rata subscription offer to Holder of
Common Stock, or (iii) for determining rights to vote with respect to any
dissolution, or liquidation or with respect to any of the events specified
in Section 7(a)
7
(c) The Company will also give written notice to Holder at least
twenty (20) days prior to the date on which any of the events specified in
Section 7(a) or any dissolution, or liquidation will take place.
Section 9. Successors to the Company. The Company shall not consolidate
or merge with or into, or sell all or substantially all of its assets to, any
person unless: (i) the person is a corporation; (ii) such person executes, and
mails to Holder a copy of, an instrument by which such person or an affiliate
assumes the due and punctual payment of the principal of and interest on this
Series 1 Bridge Note and the performance and observance of all the obligations
of the Company under this Series1 Bridge Note; and (iii) immediately after
giving effect to the transaction, no Event of Default or event which after
notice or lapse of time or both would become an Event of Default shall have
occurred. Upon compliance with this Section 9, the Successor Corporation shall
succeed to and be substituted for the Company under this Series 1 Bridge Note
with the same effect as if the Successor Corporation had been named as the
Company herein. Nothing in this Series 1 Bridge Note shall prevent any
consolidation or merger in which the Company is the surviving corporation, or
any acquisition by the Company by purchase or otherwise of all or any part of
the assets of any other person, and no such consolidation, merger, or
acquisition shall require compliance with this Section 9.
Section 10. Events of Default and Remedies.
(a) As used herein, an "Event of Default" occurs if:
(i) the Company defaults in the payment of principal
and/or interest when the same becomes due and payable.
(ii) the Company fails to comply with any other provision
contained in this Series 1 Bridge Note, the Purchase Agreement, the
Warrant, the Repricing Warrant, or the Registration Rights Agreement,
and such failure is not cured within five (5) days after the Company
receives written demand from Holder to remedy the same;
(iii) the Company defaults in any payment of principal of or
interest on any Debt (excluding trade payables) in excess of $250,000
beyond any period of grace provided with respect thereto and the
effect of such failure is to cause the payee of such Debt to
accelerate the Debt such that such Debt becomes due prior to its
stated maturity;
(iv) any representation or warranty made in writing by or
on behalf of the Company in the Purchase Agreement, the Registration
Rights Agreement or the Escrow Agreement or in any writing furnished
in connection therewith or in connection with the transactions
contemplated by the Purchase Agreement shall be false in any material
respect on the date as of which made;
(v) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due;
(vi) any order or decree for relief in respect of the
Company is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution, or
liquidation or similar law, whether now or hereafter in effect (herein
called the "Bankruptcy Law"), of any jurisdiction;
(vii) the Company petitions or applies to any tribunal for,
or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidation, or similar official of the
Company,
8
or of any substantial part of the assets of the Company, or commences
a voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any
other jurisdiction;
(viii) any petition or application described in Section 10(a)(vi)
above is filed, or any such proceedings are commenced, against the
Company and the Company by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator, or similar official, or approving the petition in any such
proceedings, and such order, judgment, or decree remains unstayed and
in effect for more than sixty (60) days;
(ix) any order, judgment, or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment, or decree remains unstayed and in
effect for more than sixty (60) days; or
(x) a final judgment (not fully covered by insurance) in an
amount in excess of $250,000 is rendered against the Company and,
within ten (10) Business Days after entry thereof, such judgment is
not discharged or execution thereof stayed pending appeal, or within
ten (10) days after the expiration of any such stay, such judgment is
not discharged.
(b) Upon the occurrence of an Event of Default described in
subsection (vi), (vii), or (viii) of Section 10(a), the principal of and
accrued interest on this Series 1 Bridge Note shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company. If any other Event of Default exists, Holder may, in addition to
the exercise of any right, power, or remedy permitted to Holder by law,
declare (by written notice or notices to the Company) the entire principal
of and all interest accrued on this Series 1 Bridge Note to be due and
payable, and this Series 1 Bridge Note shall thereupon become immediately
due and payable, without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived by the Company. Upon
such declaration, the Company will immediately pay to Holder the then
outstanding principal of and accrued and unpaid interest on this Series 1
Bridge Note. If at any time after acceleration of the maturity of this
Series 1 Bridge Note, the Company shall pay all arrears of interest and all
payments on account of principal which shall have become due other than by
acceleration (with interest on principal and, to the extent permitted by
law, on overdue interest, at the rate specified in this Series 1 Bridge
Note) and all Events of Default shall be remedied or waived by Holder by
written notice to the Company may rescind and annul the acceleration and
its consequences, but such action shall not affect any subsequent Event of
Default or impair any right consequent thereon.
(c) A delay or omission by Holder in exercising any right or remedy
arising upon an Event of Default shall not impair such right or remedy or
constitute a waiver of or an acquiescence in the Event of Default.
(d) If any Event of Default shall occur and be continuing, Holder may
proceed to protect and enforce their rights under this Series 1 Bridge Note
and this Series 1 Bridge Note by exercising such remedies as are available
to such Holder either by suit in equity or by action at law, or both,
whether for specific performance of any covenant or other agreement
contained in this Series 1 Bridge Note or in aid of the exercise of any
power granted in this Series 1 Bridge Note. No remedy conferred in this
Series 1 Bridge Note upon Holder is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter
existing at law or in equity or by statute or otherwise.
9
Section 11. Exchange, Transfer, Replacement or Cancellation.
(a) This Series 1 Bridge Note may be exchanged for an equal principal
amount of Series 1 Bridge Notes in denominations of US$10,000.00 or in
greater multiples of US$5,000.00 upon written request to the Company
accompanied by surrender of this Series 1 Bridge Note to the Company or to
an agent designated for that purpose. Any Series 1 Bridge Notes issued in
exchange for this Series 1 Bridge Note shall be one of this Series 1 Bridge
Note referred to in Section 1, and shall be entitled to all the rights
thereof.
(b) The Series 1 Bridge Notes may not be transferred except upon the
conditions specified in this Section 11(b), which conditions are intended
to insure compliance with the provisions of the Securities Act. Prior to
any proposed transfer of this Series 1 Bridge Note Holder shall give
written notice to the Company of the proposed disposition and shall furnish
to the Company a statement of the circumstances surrounding the proposed
disposition and an opinion of counsel reasonably satisfactory to the
Company to the effect that (i) such disposition will not require
registration of such securities under the Securities Act or qualification
of such securities under the blue sky or state securities laws of any state
in which such qualification would be required, or (ii) appropriate action
necessary for compliance with the Securities Act or the blue sky or
securities laws of such states has been taken. Holder shall cause any
proposed transferee of such securities to agree to take and hold such
securities subject to the provisions and upon the conditions specified in
this Section 11. The Company or any co-registrar appointed by the Company
may require Holder to furnish appropriate endorsements and/or transfer
documents, including information regarding any proposed transferee's name,
address and social security or taxpayer identification number, and to pay
any issue or transfer taxes or fees as may be required by law. The
registered Holder may be treated as its owner for all purposes.
(c) If Holder claims this Series 1 Bridge Note has been lost,
destroyed, or wrongfully taken, the Company shall issue a replacement
Series 1 Bridge Note upon (i) receipt of any indemnity bond or other
assurance requested by the Company to protect it from any loss which it may
suffer by reason of such replacement or subsequent presentment of the
original Series 1 Bridge Note, and (ii) payment of any expenses reasonably
incurred by the Company in replacing the Series 1 Bridge Note.
Section 12. Amendments and Waivers. This Series 1 Bridge Note may, with
the consent of the Company and Holder be amended or any provision thereof
waived.
Section 13. Notice. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Series
1 Bridge Note must be in writing and will be deemed to have been delivered (a)
upon receipt, when delivered personally, (b) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return receipt
requested, (c) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (d) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10
If to Holder, to the registered address of Holder appearing on the books of
the Company. Each party shall provide five (5) days prior written notice to the
other party of any change in address, which change shall not be effective until
actual receipt thereof
Section 14. No Recourse Against Others. A director, officer, employee,
or shareholder, as such, of the Company shall not have any liability for any
obligations of the Company under this Series 1 Bridge Note or for any claim
based on, in respect of or by reason of such obligations or their creation.
Holder by accepting this Series 1 Bridge Note waives and releases all such
liability and such waiver and release are part of the consideration for the
issue of the Series 1 Bridge Note.
Section 15. Governing Law. The corporate laws of the State of California
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Series 1 Bridge Note shall be governed by
the internal laws of the State of __________, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
____________ or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of ____________. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting the City of ____________, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Series 1 Bridge Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. If any provision of this Series 1 Bridge Note
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Series 1 Bridge Note in that jurisdiction or the validity or
enforceability of any provision of this Series 1 Bridge Note in any other
jurisdiction.
Section 16. Definitions. Capitalized terms used in this Series 1 Bridge
Note but not otherwise defined herein shall have the meanings assigned to such
terms in the Purchase Agreement.
11
IN WITNESS WHEREOF, the parties have caused this Series 1 Bridge Financing
Note to be duly executed under seal as of day and year first above written.
[Signatures on the following page]
12
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE FINANCING NOTE
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
----------------------------
Name: Max Toghraie
Title: CEO
ATTEST:
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Secretary/Assistant Secretary
[CORPORATE SEAL]
13
EXHIBIT A
TO
BRIDGE NOTE
CONVERSION NOTICE
Reference is made to terms and conditions of the Series 1 Bridge Note in the
principal amount of $________ registered in the name of _______________________
_____________ {NAME OF HOLDER} (the "Bridge Note"). In accordance with and
pursuant to the terms of the Bridge Note, the undersigned hereby elects to
convert $________ in principal amount of the Bridge Note into shares of Common
Stock, without par value (the "Common Stock"), of the Company, by tendering the
original Bridge Note specified below as of the date specified below.
Date of Conversion: ________________________
Principal Amount of Bridge Note to be converted: ________________________
Identification Number of Bridge Note: ________________________
Please confirm the following information:
Conversion Price: ________________________
Number of shares of Common Stock to be issued:
________________________
Please issue the Common Stock into which the Bridge Notes are being converted in
the following name and to the following address:
Issue to: ______________________________
______________________________
______________________________
Facsimile Number:_____________
Authorization:__________________________
By:___________________________
Title:________________________
Dated:________________________
If electronic book entry transfer, complete the following:
Account Number:_________________________
Transaction Code Number:________________
14
COMPANY ACKNOWLEDGEMENT
TO
CONVERSION NOTICE
ACKNOWLEDGED AND AGREED:
CUMETRIX DATA SYSTEMS CORP.
By:/s/ Max Toghraie
________________________________
Name: Max Toghraie
Title: CEO
Date:
15
ATTACHMENT 1
TO
SERIES 1 BRIDGE FINANCING NOTE
Form of Repricing Warrant
Form Attached hereto.
16
SCHEDULE 1
DISCLOSURE SCHEDULE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Section 3.3 - Capitalization
Section 3.5 - No Conflicts
Section 3.7 - Absence of Changes
Section 3.8 - Absence of Litigation
Section 3.14 - Intellectual Property
Section 3.16 - Title
Section 3.21 - Tax Matters
Section 3.22 - Certain Transactions
___________________
* If no disclosure is required in any specific section of this Disclosure
Schedule, please so indicate by stating "none" or "not applicable."
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), is made and entered into
as of this 29 day of September, 2000, among CUMETRIX DATA SYSTEMS CORP., a
California corporation (the "Company"), and the Persons listed on the Purchaser
Signature Pages hereto (each of whom is individually referred to as a
"Purchaser" and all of whom collectively are referred to as the "Purchasers").
Background
In connection with the consummation of the transactions contemplated by
that Series 1 Bridge Note Purchase and Security Agreement (the "Purchase
Agreement") of even date herewith by and among the Company and the Purchasers,
the Company has agreed, upon the terms and subject to the conditions of the
Purchase Agreement, to issue and sell to the Purchasers from time to time up to
$1,500,000 in maximum principal amount of Series 1 Convertible Subordinated
Secured Bridge Financing Notes (the "Bridge Notes") together with Common Stock
Purchase Warrants (the "Purchaser Warrants"). Attached to the Bridge Notes are
Repricing Warrants (the "Repricing Warrants" and together with the Purchaser
Warrants are hereinafter collectively referred to as, the "Warrants" and the
Bridge Notes and the Warrants are hereinafter collectively referred to as the
"Purchased Securities"). The Bridge Notes are convertible into, and the
Purchaser Warrants and the Repricing Warrants are exercisable for, shares of the
Company's common stock, without par value (the "Common Stock"). The Common Stock
issuable upon conversion of the Bridge Notes is hereinafter referred to as the
"Conversion Shares," and the Common Stock issuable upon exercise or conversion
of the Purchaser Warrants is hereinafter referred to as the "Purchaser Warrant
Shares," and the Common Stock issuable upon exercise of the Repricing Warrants
is hereinafter called the "Repricing Warrant Shares." To induce Purchasers to
execute and deliver the Purchase Agreement, the Company has agreed to file a
Registration Statement covering the Conversion Shares, the Purchaser Warrant
Shares, and the Repricing Warrant Shares under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 Act"), and applicable state securities laws.
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Purchasers hereby agree as
follows:
Section 1. Definitions. As used in this Agreement, the following
capitalized terms shall have the meanings thereafter ascribed:
(a) "Investor" means any Purchaser and any transferee or
assignee thereof to whom any Purchaser assigns its rights under this
Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
(b) "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual,
a governmental or political subdivision thereof, or a governmental agency.
(c) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under
the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement or Registration Statements by
the United States Securities and Exchange Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares, the
Purchaser Warrant Shares, the Repricing Warrant Shares, and any shares of
capital stock issued or issuable with respect to the Purchased Securities,
Conversion Shares, the Purchaser Warrant Shares, or the Repricing Warrant
Shares as a result of any stock split, stock dividend, recapitalization,
exchange, or similar event or otherwise.
(e) "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering
the Registrable Securities.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Purchase Agreement.
Section 2. Registration.
(a) Mandatory Registration. The Company shall prepare and, as
soon as practicable but in no event later than sixty days (60) days after the
First Closing Date (the "Filing Deadline"), file with the SEC a Registration
Statement on Form S-3 (or, if such form is unavailable for such a registration,
on such other form as is available for such a registration), covering the resale
of all of the Registrable Securities. The Registration Statement shall state
that, in accordance with Rule 416 promulgated under the 1933 Act, such
Registration Statement shall be deemed to cover the additional number of
securities to be offered or issued in upon conversion of the Bridge Notes or
exercise of the Purchaser Warrants to prevent dilution resulting from stock
splits, stock dividends, or similar transactions. Such Registration Statement
shall initially register for resale at least 150% of the number of Registrable
Securities as of the date immediately preceding the date the Registration
Statement initially is filed with the SEC, subject to adjustment as provided in
Section 3(b) hereof. The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within one hundred fifty
(150) days after the First Closing Date (the "Registration Deadline"). The
Company shall permit the registration statement to become effective within five
(5) business days after receipt (whether orally or in writing) of a "no review"
notice from the SEC.
(b) Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) involves an underwritten
offering, the Purchasers shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer their
interest in the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
(c) Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to securities to be issued solely in connection with any acquisition of
any entity or business or equity securities issuable in connection with stock
option or other employee benefit plans) the Company shall promptly send to each
2
Investor who is entitled to registration rights under this Section 2(c) written
notice of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(c) and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, subject to the priorities
set forth in Section 2(d) below. No right to registration of Registrable
Securities under this Section 2(c) shall be construed to limit any registration
required under Section 2(a) hereof. The obligations of the Company under this
Section 2(c) may be waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is entitled to
registration under this Section 2(c) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
(d) Priority in Piggy-Back Registration Rights in connection
with Registrations for Company Account. If the registration referred to in
Section 2(c) is to be an underwritten public offering for the account of the
Company and the managing underwriter(s) advise the Company in writing, that in
their reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration: (i)
first, all securities the Company proposes to sell for its own account, (ii)
second, up to the full number of securities proposed to be registered for the
account of the holders of securities entitled to inclusion of their securities
in the Registration Statement by reason of demand registration rights, and (iii)
third, the securities requested to be registered by the Investors and other
holders of securities entitled to participate in the registration, drawn from
them pro rata based on the number each has requested to be included in such
registration.
(e) Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
(f) Legal Counsel. Subject to Section 5 hereof, the Investors
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ & Kuh, LLP
or such other counsel as thereafter designated by the holders of a majority of
Registrable Securities. The Company shall reasonably cooperate with Legal
Counsel in performing the Company's obligations under this Agreement.
(g) Eligibility for Form S-3. The Company represents, warrants
covenants that except for its Annual Report on Form 10-K for the year ended
March 31, 1999, it has filed and shall file all reports required to be filed by
the Company with the SEC in a timely manner. In the event that Form
3
S-3 is not available for registration of the Registrable Securities hereunder,
then (i) the Company shall register the Registrable Securities on another
appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
(h) Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If (i) the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective by the SEC or before the one hundred
eightieth (180th) day after the First Closing Date (the "Registration Default
Deadline"), (ii) after the Registration Statement has been declared effective by
the SEC, the Registration Statement is withdrawn or suspended or if sales
otherwise cannot be made pursuant to the Registration Statement for a period of
at least fifteen (15) consecutive trading days or thirty (30) days in any twelve
(12) month period, or (iii) the Common Stock is not listed or included for
quotation on the OTC Bulletin Board (the "OTCBB"), the Nasdaq National Market
("NNM"), the Nasdaq SmallCap Market ("NSM"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") for a period of at least ten
(10) consecutive days, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(h) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Bridge Notes or Registrable
Securities an amount equal to the aggregate Purchase Price (as defined below) of
the Bridge Notes ("Aggregate Share Price") multiplied by the Payment Percentage
(as defined below) times (x) the number of months (prorated for partial months)
following the Registration Default Deadline and prior to the date the
Registration Statement is declared effective by the SEC, provided, however, that
there shall be excluded from such period any delays which are solely
attributable to changes either required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of the Registration Statement pursuant to
Section 4(a) below in a reasonably prompt manner or changes reasonably requested
by the Company as a result of changes in such information; (y) the number of
months (prorated for partial months) after the end of the 15-day or 30-day
period referenced in clause (ii) above that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement or when such prospectus
otherwise contains a material misstatement or omission); or (z) the number of
months (prorated for partial months) after the end of the 30-day period
referenced in clause (iii) above that the Common Stock is not listed or included
for quotation on the OTCBB, NNM, NSM, NYSE or AMEX or that trading thereon is
halted after the Registration Statement has been declared effective. The Payment
Percentage shall be two percent (2%) per each thirty (30) day period (or $20,000
per each 30-day for each $1,000,000 of Purchase Price of Purchased Securities
then held by the Investors). Such amounts shall be paid in cash or, at the
Investor's option, may be paid in shares of Common Stock valued at the Average
Market Price (as such term is defined in the Purchaser Warrant). Any such shares
of Common Stock shall be Registrable Securities. If any Investor desires to
receive the amounts due hereunder in shares of Common Stock, it shall so notify
the Company within two (2) business days of the date on which such amounts are
first payable in cash and such amounts shall be issued beginning on the last day
upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
4
interim payments shall be made for each such thirty (30) day period. The term
"Purchase Price" means the purchase price paid by the Investors for the Bridge
Notes.
Section 3. Related Obligations. Whenever an Investor has requested that
any Registrable Securities be registered pursuant to Section 2(c) hereof, or at
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a) hereof, the Company will use its best efforts to
effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or
prior to the Filing Deadline), for the registration of Registrable
Securities pursuant to Section 2(a) and use its best efforts to cause such
Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing and in any event by the
Registration Deadline, and keep the Registration Statement effective
pursuant to Rule 415 at all times until the later of (i) the date as of
which the Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall have
sold all the Registrable Securities and (B) none of the Purchased
Securities is outstanding (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement, which prospectus is to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the
Registration Statement effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act
with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as all of
such Registrable Securities shall have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities, the Company
shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both,
so as to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time
the number of Registrable Securities issued or issuable upon conversion of
the Purchased Securities is greater than the quotient determined by
dividing (i) the number of shares of Common Stock available for resale
under such Registration Statement by (ii) 1.25. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Bridge Notes or exercise of the Purchaser Warrants
and the Repricing Warrants shall be disregarded and such calculation shall
assume that the Bridge Notes are then convertible into shares of Common
Stock at the then
5
prevailing Conversion Price (as defined in the Bridge Notes) and that the
Purchaser Warrants and the Repricing Warrants are exercised at the then
current exercise price.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and Legal Counsel,
without charge, (i) promptly after the same is prepared and filed with the
SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference, and all exhibits, the prospectus
included in such Registration Statement (including each preliminary
prospectus) and all correspondence by or on behalf of the Company to the
SEC or the staff of the SEC and all correspondence from the SEC or the
staff of the SEC to the Company or its representatives, related to such
Registration Statement, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number
of copies as such Investor may reasonably request), and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.
(d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d) hereof, (B) subject itself to general
taxation in any such jurisdiction, or (C) file a general consent to service
of process in any such jurisdiction. The Company shall promptly notify each
Investor and Legal Counsel who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of
any proceeding for such purpose.
(e) In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters
for the offering, the Company shall enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution obligations,
with the underwriters of such offering.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor and Legal Counsel in writing
of the happening of any event, as a result of which, the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to each Investor (or such other number of
copies as such
6
Investor may reasonably request), with a copy to Legal Counsel. The Company
shall also promptly notify each Investor and Legal Counsel in writing (i)
when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to each Investor and Legal Counsel by facsimile on the same day
of such effectiveness and by overnight mail), (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
(g) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction and, if such an
order or suspension is issued, to obtain the withdrawal of such order or
suspension at the earliest possible moment, and to notify each Investor who
holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) and Legal Counsel of the
issuance of such order and the resolution thereof, or its receipt of actual
notice of the initiation, or threatened initiation of any proceeding for
such purpose.
(h) The Company shall permit Legal Counsel to review and comment
upon the Registration Statement and all amendments and supplements thereto
at least seven (7) days prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of
a Registration Statement or any amendment or supplement thereto without the
prior approval of such counsel, which consent shall not be unreasonably
withheld. Legal Counsel shall not unduly delay the filing of the
Registration Statement, any amendment or supplement thereto or any
acceleration request required to be filed by the Company.
(i) At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date
that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement (i) if required by an
underwriter, a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given
by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope, and substance as
is customarily given in an underwritten public offering, addressed to the
underwriters and the Investors.
(j) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to
a Registration Statement, (iii) Legal Counsel, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the "Records"), as shall be
reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's
officers, directors, and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence
provided, however, that each Inspector shall hold in strict confidence and
shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of
7
which determination the Inspectors are so notified, unless (A) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in any Registration Statement or is otherwise required under
the 1933 Act, (B) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (C) the information in such Records has been
made generally available to the public other than by disclosure in
violation of this Agreement or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential.
(k) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this Agreement or any other agreement of which the Company has
knowledge. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
(l) As soon as possible after the date that the Company meets
the eligibility criteria for listing or inclusion of its securities
thereon, the Company shall use its best efforts either to (i) apply for
listing of its common stock on a national securities exchange and cause all
the Registrable Securities covered by a Registration Statement to be listed
thereon, if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or (ii) to apply for securities to be
designated and quoted on the Nasdaq National Market or SmallCap Market and
to cause of all the Registrable Securities covered by the Registration
Statement, to be quoted thereof. If, despite using its best efforts, the
Company is unsuccessful in satisfying the preceding clause (i) or (ii), the
Company shall use its best efforts to continue to maintain the inclusion
for quotation on the OTCBB and to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD")
as such with respect to such Registrable Securities. The Company shall pay
all fees and expenses in connection with satisfying its obligation under
this Section 3(1).
(m) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely preparation
and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or, if there is no managing underwriter or
underwriters, the Investors may reasonably request and registered in such
names as the managing underwriter or underwriters, if any, or the Investors
may request. Not later than the date on which any Registration Statement
registering the resale of Registrable Securities is declared
8
effective, the Company shall deliver to its transfer agent instructions
substantially in the form attached as Exhibit F to the Purchase Agreement,
accompanied by any reasonably required opinion of counsel, that permit
sales of unlegended securities in a timely fashion that complies with then
mandated securities settlement procedures for regular way market
transactions.
(n) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
(o) The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
(p) If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and
the Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold
to such underwriters, the purchase price being paid therefor by such
underwriters, and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be
sold in such offering; make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the matters
to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement
if requested by a shareholder or any underwriter of such Registrable
Securities.
(q) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(r) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
Section 4. Obligations of the Investors.
(a) At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable
Securities, and shall execute such documents in connection with such
registration as the Company may reasonably request.
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
9
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
(c) In the event Investors holding a majority of the Registrable
Securities being registered determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations (only with
respect to violations which occur in reliance upon and in conformity with
information furnished in writing to the Company by such Investor expressly for
use in the Registration Statement for such underwritten public offering), with
the managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor notifies the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended shares of Common Stock to a transferee of an Investor in connection
with any sale of Registrable Securities with respect to which an Investor has
entered into a contract for sale prior to the Investor's receipt of a notice
from the Company of the happening of any event of the kind described in Section
3(g) or the first sentence of 3(f) and for which the Investor has not yet
settled.
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
Section 5. Expenses of Registration. All reasonable expenses, other
than underwriting discounts and commissions, incurred in connection with
registrations, filings, or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and printing fees, accounting fees, and fees and disbursements of
counsel for the Company and fees and disbursements of Legal Counsel, shall be
borne by the Company; provided, however, that the fees of Legal Counsel which
the Company shall be required to pay pursuant to this Section 5 shall not exceed
$25,000, when aggregated with any legal fees paid at the First Closing by the
Company to legal counsel for the Purchasers.
Section 6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless, and defend each Investor who
holds such Registrable Securities, the directors, officers, partners,
employees, agents, and each Person, if any, who controls any
10
Investor within the meaning of the 1933 Act or the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and any underwriter (as defined in
the ▇▇▇▇ ▇▇▇) for the Investors, and the directors and officers of, and
each Person, if any, who controls, any such underwriter within the meaning
of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against
any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses,
joint or several, (collectively, "Claims") incurred in investigating,
preparing, or defending any action, claim, suit, inquiry, proceeding,
investigation, or appeal taken from the foregoing by or before any court or
governmental, administrative, or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may
become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or any post-effective amendment thereto or
in any filing made in connection with the qualification of the offering
under the securities or other "blue sky" laws of any jurisdiction in which
Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which the statements therein were made, not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading, or, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities pursuant to a Registration
Statement (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in
Section 6(d) with respect to the number of legal counsel, the Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available
by the Company pursuant to Section 3(c); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the benefit of any person
controlling such person) if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely
made available by the Company pursuant to Section 3(c), and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus
prior to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used (iii) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section
3(c), and (iv) shall not apply to amounts paid in settlement of any Claim
if such settlement is
11
effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
Person, if any, who controls the Company within the meaning of the 1933 Act
or the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim or Indemnified Damages to which any
of them may become subject, under the 1933 Act, the 1934 Act, or otherwise,
insofar as such Claim or Indemnified Damages 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 to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Section 6(b)
for only that amount of a Claim or Indemnified Damages as does not exceed
the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to
any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding)
involving a Claim such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel
12
retained by the indemnifying party, the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Company shall pay
reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or Indemnified
Person shall cooperate fully with the indemnifying party in connection with
any negotiation or defense of any such action or claim by the indemnifying
party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to
the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay
or condition its consent. No indemnifying party shall, without the consent
of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from
all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person
with respect to all third parties, firms, or corporations relating to the
matter for which indemnification has been made. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action.
(e) The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
(f) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified
Party or Indemnified Person against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject to pursuant to
the law.
Section 7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that: (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of fraudulent misrepresentation, and
(iii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
Section 8. Reports Under The 1934 Act. As long as any Purchased
Securities or Registrable Securities remain outstanding, the Company, with a
view to making available to the
13
Investors the benefits of Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit the investors
to sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations under
Section 6.3 of the Purchase Agreement) and the filing of such reports and
other documents is required for the applicable provisions of Rule 144;
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the 1933 Act, and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company, (iii) such other information as may be reasonably
requested to permit the investors to sell such securities pursuant to Rule
144 without registration and cause;
(d) cause its legal counsel to furnish to the Company's transfer
agent (with a copy to the requesting Investor), promptly upon request, an
opinion of such firm in generally acceptably form, so as to permit the
transfer of the Registrable Securities in accordance with Rule 144.
14
Section 9. Assignment of Registration Rights. The rights under this
Agreement shall be automatically assignable by the Investors to any transferee
of all or any portion of Registrable Securities if: (i) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (A) the name and address of such
transferee or assignee, and (B) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the 1933 Act and applicable
state securities laws; (iv) the transferee or assignee agrees in writing with
the Company to be become a party to and be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement.
Section 10. Amendment of Registration Rights. Provisions of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold two-thirds of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Registrable Securities. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
Section 11. Miscellaneous.
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices, or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice, or election received from the registered owner of such Registrable
Securities.
(b) Any notice, consent, waiver, or other communication required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (a) upon receipt, when delivered
personally, (b) upon receipt, when sent by facsimile, provided, that a copy is
mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
15
With a copy (which shall not constitute notice) to:
Sichenzia, Ross & ▇▇▇▇▇▇▇▇ LLP
135 West 5oth Street, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser, to its address and facsimile number on the
signature page of such Purchaser hereto, with copies to such Purchaser's counsel
as set forth on the signature page of such Purchaser hereto.
Each party shall provide five (5) days prior written notice to
the other party of any change in address or facsimile number.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The corporate laws of the State of California shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) This Agreement supersedes all other prior oral or written
agreements between the Purchasers and the Company with respect to the matters
discussed herein, and this Agreement and the Purchase and the instruments
referenced herein and therein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant, or undertaking with respect to
such matters.
(f) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
The Company shall not assign this Agreement or any
16
rights or obligations hereunder. This Agreement may be assigned by the Investors
in accordance with the provisions of Section 9.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(i) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.
(j) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(k) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments, and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
[Signatures on the following pages]
17
COMPANY SIGNATURE PAGE
TO
REGISTRATION RIGHTS AGREEMENT
COMPANY:
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
--------------------
Name: Max Toghraie
Title: CEO
18
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED
UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
CUMETRIX DATA SYSTEMS CORP.
ATTACHED REPRICING WARRANT
Warrant No. RPW-____ [20,000 Shares per $100,000 principal
amount of Bridge Notes (subject to adjustment)
Original Issue Date: September 29, 2000
THIS CERTIFIES THAT, FOR VALUE RECEIVED, _______________ {Purchaser of
Bridge Notes} or its registered assigns ("Holder") is entitled to purchase, on
the terms and conditions hereinafter set forth, after the Repricing Date, a
number of shares of the Common Stock, without par value (the "Common Stock"), of
CUMETRIX DATA SYSTEMS CORP., a California corporation (the "Company"),
determined in accordance with Section 2 hereof, at a price of $.001 per share
(the "Exercise Price"). Each share of Common Stock as to which this Repricing
Warrant is exercisable is a "Repricing Share" and all such shares are
collectively referred to as the "Repricing Shares." This Repricing Warrant shall
remain attached to the Series 1 Bridge Financing Note issued to Holder on the
Original Issue Date (the "Bridge Note"), until conversion of the Bridge Note, at
which time a portion of this Warrant shall automatically become exercisable and
detach in accordance with the terms hereof.
Section 1. Definitions.
The following capitalized terms are not defined elsewhere in this Repricing
Warrant, and are used herein with the meanings thereafter ascribed:
"Average Market Price" means, the arithmetic mean of the Closing Bid Prices
of the Common Stock for each trading day in the Repricing Period.
"Closing Bid Price" means, the last closing bid price of the Common Stock
during regular trading hours on the OTC Bulletin Board (the "OTCBB") as reported
by Bloomberg Financial Markets ("Bloomberg"), or, if the OTCBB is not the
principal trading market for the Common Stock, the last closing bid price during
regular trading hours of the Common Stock on the principal securities exchange
or trading market where the Common Stock is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of the
Common Stock in the over-the-counter market on the pink sheets or bulletin board
for the Common Stock as reported by Bloomberg, or, if no closing bid price is
reported for the Common Stock by Bloomberg, the last closing trade price of the
Common Stock as reported by Bloomberg. If the Closing Bid Price cannot be
calculated for the Common Stock on such date on any of the foregoing bases, the
Closing Bid Price of the Common Stock on such date shall be the fair market
value as reasonably determined in good faith by the Board of Directors of the
Company (all
as appropriately adjusted for any stock dividend, stock split, or other similar
transaction during such period);
"Conversion Date" means the date Holder converts the Bridge Note.
"Conversion Price" means $2.40.
"Conversion Shares" means the number of shares of Common Stock issued from
time to time upon conversion of the Bridge Note.
"Repricing Date" means the twenty-first (21st) Trading Day after the
Conversion Date.
"Repricing Period" means the twenty (20) Trading Days period commencing on
the Conversion Date.
Other capitalized terms used in this Warrant but not otherwise defined
herein shall have the meanings assigned to such terms in the Securities Purchase
Agreement (as hereinafter defined).
Section 2. Determination of Number of Repricing Shares. The number of
Repricing Shares issuable upon exercise of this Repricing Warrant shall be
adjusted on the Repricing Date to an amount equal to: the number of Conversion
Shares multiplied by a fraction, (a) the numerator of which is the Conversion
Price minus the Average Market Price and (b) the denominator of which is the
Average Market Price. In the case of a dispute as to the determination of the
Average Market Price or the arithmetic calculation of the Exercise Price, the
Company shall promptly issue to such Holder the number of shares of Common Stock
that is not disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within three (3) business days of
receipt of such holder's Conversion Notice. If such Holder and the Company are
unable to agree upon the determination of the Average Market Price or arithmetic
calculation of the Exercise Price within two (2) business days of such disputed
determination or arithmetic calculation being submitted to the holder, then the
Company shall within one (1) business day submit via facsimile (A) the disputed
determination of the Average Market Price to an independent, reputable
investment bank or (B) the disputed arithmetic calculation of the Exercise Price
to its independent, outside accountant. The Company shall cause the investment
bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and such Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
Section 3. Exercise of Warrant.
(a) This Warrant shall be exercised by Holder in whole (and not
in part) promptly following the Repricing Date by delivery to the Company at its
office at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: President, of
the following: (i) a written notice of such Holder's election to exercise this
Warrant (the "Exercise Notice"), which notice may be in the form of the Notice
of Exercise attached hereto, properly executed and completed by Holder or an
authorized officer thereof; (ii) a check payable to the order of the Company, in
an amount equal to the product of the Exercise Price multiplied by the number of
Repricing Shares specified in the Exercise Notice; and (iii) this Warrant (the
items specified in (i), (ii), and (iii) are collectively the "Exercise
Materials"). Notwithstanding the foregoing, this Warrant is exercisable only if
the Average Price is less than the Conversion Price.
2
(b) As promptly as practicable, and in any event within two (2)
business days after its receipt of the Exercise Materials the Company shall
execute or cause to be executed and delivered to Holder a certificate or
certificates representing the number of Repricing Shares specified in the
Exercise Notice, together with cash in lieu of any fraction of a share. The
stock certificate or certificates shall be registered in the name of Holder or
such other name or names as shall be designated in the Exercise Notice. The date
on which the Warrant shall be deemed to have been exercised and the date the
person in whose name any certificate evidencing the Common Stock issued upon the
exercise hereof is issued shall be deemed to have become the holder of record of
such shares, shall be the date (the "Effective Date") the Company receives the
Exercise Materials, irrespective of the date of delivery of a certificate or
certificates evidencing the Common Stock issued upon the exercise hereof;
provided, however, that if the Exercise Materials are received by the Company on
a date on which the stock transfer books of the Company are closed, the
Effective Date shall be the next succeeding date on which the stock transfer
books are open. All shares of Common Stock issued upon the exercise of this
Warrant will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens, and charges with respect thereto.
(c) If the Company shall fail to issue, or cause the issuance,
to Holder within five (5) business days following the date of receipt by the
Company of the Exercise Materials, a certificate for the number of shares of
Common Stock to which Holder is entitled upon exercise of this Warrant, in
addition to all other available remedies which such holder may pursue at law or
in equity, including without limitation the rights to indemnification pursuant
to Section 6.18 of the Series 1 Bridge Note Purchase and Security Agreement
between the Company and the initial holder of the Warrant (the "Securities
Purchase Agreement"), the Company shall pay additional damages to Holder on each
day after the Effective Date until such certificate for the Repricing Shares is
received by Holder, an amount equal to 1.0% of the product of (A) the number of
Repricing Shares not issued to Holder and to which Holder is entitled multiplied
by (B) the Closing Bid Price of the Common Stock on the Effective Date. Such
damages shall be computed and due and payable daily.
(d) The Company may, in lieu of issuing the Repricing Shares,
pay to Holder an amount equal to the number of Repricing Shares issuable on the
Effective Date multiplied by the difference between (i) arithmetic mean of the
Closing Bid Prices of the Common Stock for the five trading day period ending on
the last day of the Repricing Period and (ii) the Exercise Price (such, amount,
the "Payment Amount"). In such event, the Company shall pay the Payment Amount
to Holder within five (5) business days following the Effective Date. If the
Company shall fail to pay the Payment Amount within five (5) business days after
the Effective Date, in addition to all other available remedies which Holder may
pursue at law or equity, including without limitation the rights to
indemnification pursuant to Section 7.18 of the Securities Purchase Agreement,
the Company shall pay additional damages to Holder on each day after the
Effective Date, until the Payment Amount has been paid, an amount equal to 1.0%
of the Payment Amount. Such damages shall be computed and due and payable daily.
Section 4. Adjustments to Repricing Shares. The number of Repricing
Shares issuable upon the exercise hereof shall be subject to adjustment as
follows:
(a) In the event the Company is a party to a consolidation,
share exchange, or merger, or the sale of all or substantially all of the
assets of the Company to, any person, or in the case of any consolidation
or merger of another corporation into the Company in which the Company is
the surviving corporation, and in which there is a reclassification or
change of the shares of Common Stock of the Company, this Warrant shall
after such consolidation, share exchange, merger, or sale be exercisable
for the kind and number of securities or amount and
3
kind of property of the Company or the corporation or other entity
resulting from such share exchange, merger, or consolidation, or to which
such sale shall be made, as the case may be (the "Successor Company"), to
which a holder of the number of shares of Common Stock deliverable upon the
exercise (immediately prior to the time of such consolidation, share
exchange, merger, or sale) of this Warrant would have been entitled upon
such consolidation, share exchange, merger, or sale; and in any such case
appropriate adjustments shall be made in the application of the provisions
set forth herein with respect to the rights and interests of Holder, such
that the provisions set forth herein shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to the number
and kind of securities or the type and amount of property thereafter
deliverable upon the exercise of this Warrant. The above provisions shall
similarly apply to successive consolidations, share exchanges, mergers, and
sales. Any adjustment required by this Section 4(a) because of a
consolidation, share exchange, merger, or sale shall be set forth in an
undertaking delivered to Holder and executed by the Successor Company which
provides that Holder shall have the right to exercise this Warrant for the
kind and number of securities or amount and kind of property of the
Successor Company or to which the holder of a number of shares of Common
Stock deliverable upon exercise (immediately prior to the time of such
consolidation, share exchange, merger, or sale) of this Warrant would have
been entitled upon such consolidation, share exchange, merger, or sale.
Such undertaking shall also provide for future adjustments to the number of
Repricing Shares and the Exercise Price in accordance with the provisions
set forth in Section 2 hereof.
(b) In the event the Company should at any time, or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a stock split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock, or securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or exercise thereof), then,
as of such record date (or the date of such dividend, distribution, split,
or subdivision if no record date is fixed), the number of Repricing Shares
issuable upon the exercise hereof shall be proportionately increased and
the Exercise Price shall be appropriately decreased by the same proportion
as the increase in the number of outstanding Common Stock Equivalents of
the Company resulting from the dividend, distribution, split, or
subdivision. Notwithstanding the preceding sentence, no adjustment shall be
made to decrease the Exercise Price below $.001 per Share.
(c) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a reverse stock split, or a transaction having a similar effect on the
number of outstanding shares of Common Stock of the Company, then, as of
such record date (or the date of such reverse stock split or similar
transaction if no record date is fixed), the number of Repricing Shares
issuable upon the exercise hereof shall be proportionately decreased and
the Exercise Price shall be appropriately increased by the same proportion
as the decrease of the number of outstanding Common Stock Equivalents
resulting from the reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for a
reclassification of its Common Stock, then, as of such record date (or the
date of the reclassification if no record date is set), this Warrant shall
4
thereafter be convertible into such number and kind of securities as would
have been issuable as the result of such reclassification to a holder of a
number of shares of Common Stock equal to the number of Repricing Shares
issuable upon exercise of this Warrant immediately prior to such
reclassification, and the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate in order to protect the rights of Holder
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (x) will not create a par value of any share of
stock receivable upon the exercise of the Warrant above the amount payable
therefor upon such exercise, and (y) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares upon the exercise of the
Warrant.
(f) When any adjustment is required to be made in the number or
kind of shares purchasable upon exercise of the Warrant, or in the Exercise
Price, the Company shall promptly notify Holder of such event and of the
number of shares of Common Stock or other securities or property thereafter
purchasable upon exercise of the Warrants and of the Exercise Price,
together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Repricing Shares
which may be issued will, upon issuance, be validly issued, fully paid, and
non-assessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for
the exercise of the Warrant in full.
Section 5. No Stockholder Rights. This Warrant shall not entitle Holder
to any voting rights or other rights as a stockholder of the Company.
Section 6. Transfer of Securities.
(a) This Warrant and the Repricing Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon, or
otherwise, shall not be transferable except upon compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws with respect to the transfer of such
securities. The Holder, by acceptance of this Warrant, agrees to be bound
by the provisions of this Section 6 and to indemnify and hold harmless the
Company against any loss or liability arising from the disposition of this
Warrant or the Repricing Shares issuable upon exercise hereof or any
interest in either thereof in violation of the provisions of this Warrant.
(b) Each certificate for the Repricing Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions hereof) be stamped or otherwise imprinted with
a legend in substantially the following form:
5
"NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD
OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED
A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
Section 7. Registration.
All Repricing Shares are subject to the rights and privileges granted in
and under the Registration Rights Agreement dated August __, 2000 as Registrable
Securities (as such term is defined in such Registration Rights Agreement).
Section 8. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or permitted assigns of the Company and
Holder.
(b) Except as otherwise provided herein, this Warrant and all
rights hereunder are transferable by the registered holder hereof in person or
by duly authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and treat the
registered holder of this Warrant at any time as the absolute owner hereof for
all purposes and shall not be affected by any notice to the contrary.
(c) Notwithstanding any provision herein to the contrary, Holder
may not exercise, sell, transfer, or otherwise assign this Warrant unless the
Company is provided with an opinion of counsel satisfactory in form and
substance to the Company, to the effect that such exercise, sale, transfer, or
assignment would not violate the Securities Act or applicable state securities
laws.
(d) This Warrant may be divided into separate warrants covering
one share of Common Stock or any whole multiple thereof, for the total number of
shares of Common Stock then subject to this Warrant at any time, or from time to
time, upon the request of the registered holder of this Warrant and the
surrender of the same to the Company for such purpose. Such subdivided Warrants
shall be issued promptly by the Company following any such request and shall be
of the same form and tenor as this Warrant, except for any requested change in
the name of the registered holder stated herein.
(e) Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
6
If to Holder, to the registered address of Holder appearing on
the books of the Company. Each party shall provide five (5) days prior written
notice to the other party of any change in address, which change shall not be
effective until actual receipt thereof.
(f) The corporate laws of the State of California shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Warrant shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Warrant in that jurisdiction or the
validity or enforceability of any provision of this Warrant in any other
jurisdiction.
[Signatures on the following page]
7
SIGNATURE PAGE
TO
ATTACHED REPRICING WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed in
its name by its duly authorized officers under seal, and to be dated as of the
date first above written.
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
-----------------------
Name: Max Toghraie
Title: CEO
ATTEST:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Secretary/Assistant Secretary
[CORPORATE SEAL]
8
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers
unto ___________________________________________________________________________
the foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of CUMETRIX DATA SYSTEMS CORP. in accordance with terms and
conditions thereof, and does hereby irrevocably constitute and appoint
________________ Attorney to transfer the said Warrant on the books of the
Company, with full power of substitution.
Holder:
__________________________
__________________________
Address
Dated: ____________, 19__
In the presence of:
__________________________
EXERCISE NOTICE
[To be signed only upon exercise of Warrant]
To: CUMETRIX DATA SYSTEMS CORP.
The undersigned Holder of the attached Warrant hereby irrevocably elects to
exercise the Warrant for, and to purchase thereunder, _____ shares of Common
Stock of CUMETRIX DATA SYSTEMS CORP., issuable upon exercise of said Warrant and
hereby surrenders said Warrant.
The Holder herewith delivers to CUMETRIX DATA SYSTEMS CORP., a check in the
amount of $______ representing the Exercise Price for such shares.
The undersigned herewith requests that the certificates for such shares be
issued in the name of, and delivered to the undersigned, whose address is
________________________________.
If electronic book entry transfer, complete the following:
Account Number: ______________________
Transaction Code Number: _____________
Dated: ___________________
Holder:
______________________________
______________________________
By: __________________________
Name:
Title:
NOTICE
The signature above must correspond to the name as written upon the face of
the within Warrant in every particular, without alteration or enlargement or any
change whatsoever.
COMPANY ACKNOWLEDGEMENT
TO
EXERCISE NOTICE
ACKNOWLEDGED AND AGREED:
CUMETRIX DATA SYSTEMS CORP.
By:___________________________
Name:
Title:
Date:
TRANSFER AGENT INSTRUCTIONS
CUMETRIX DATA SYSTEMS CORP..
September 29, 2000
Continental Stock Transfer & Trust Company
▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Gentlemen:
Reference is made to that certain Series 1 Bridge Note Purchase and Security
Agreement, of even date herewith (the "Purchase Agreement"), by and among
Cumetrix Data Systems Corp., a California corporation (the "Company"), and the
Purchasers listed on the signature pages attached thereto (collectively, the
"Holders"), pursuant to which the Company is issuing, in one or more closing, to
the Holders its Series 1 Bridge Notes in the aggregate original principal amount
of up to $1,500,000 (the "Series 1 Bridge Notes"). The Bridge Notes are
convertible into Common Stock. In conjunction with each Bridge Note issued by
the Company at each such closing, the Company shall issue (i) to each purchaser
thereof a Purchaser Warrant (a "Purchaser Warrant") exercisable for common stock
of the Company, without par value (the "Common Stock"), and a Repricing Warrant
(a "Repricing Warrant"), attached as Attachment 1 to such Bridge Note,
exercisable for Common Stock, and (ii) to Sovereign Capital Advisors LLC, the
Sovereign Warrant (the "Sovereign Warrant") exercisable for Common Stock. The
Common Stock issuable upon conversion of the Bridge Notes is hereinafter
referred to as the "Conversion Shares," the Common Stock issuable upon exercise
of a Purchaser Warrant, a Repricing Warrant, and the Sovereign Warrant is
hereinafter referred to as the "Exercise Shares" and the Purchaser Warrants,
Repricing Warrants and Sovereign Warrant is hereinafter referred to as the
"Warrants."
This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time) to issue
the Conversion Shares and the Exercise Shares upon the order of Holder from time
to time upon (i) surrender to you of a properly completed and duly executed (1)
Conversion Notice, in the form attached hereto as Exhibit A, with respect to a
Series 1 Bridge Note, (2) Exercise Notice, in the form attached hereto as
Exhibit B, with respect to a Purchaser Warrant, or (3) Exercise Notice, in the
form attached hereto as Exhibit C, with respect to a Repricing Warrant, which
has been properly agreed and acknowledged by the Company as indicated by the
signature of a duly authorized officer of the Company thereon and (ii) (1) the
Bridge Note (or Bridge Notes) being converted (or an indemnification undertaking
with respect to such Bridge Note in the case of their loss, theft or
destruction) or (2) the Warrant (or Warrants) being exercised (or an
indemnification undertaking with respect to such Warrant in the case of its
loss, theft or destruction).
So long as you have previously received written confirmation from counsel to the
Company that a registration statement covering resales of the Conversion Shares
and the Exercise Shares has been declared effective by the U.S. Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), certificates representing the Conversion Shares and the
Exercise Shares shall not bear any legend restricting transfer of the Conversion
Shares or the Exercise Shares and should not be subject to any stop-transfer
restriction.
However, if you have not previously received written confirmation from counsel
to the Company that a registration statement covering resales of the Conversion
Shares and the Exercise Shares has been declared effective by the Securities and
Exchange Commission under the 1933 Act, then the certificates representing the
Conversion Shares and Exercise Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT."
provided, however, that the Company may from time to time notify you to place
stop transfer restrictions on the certificates for the Conversion Shares or the
Exercise Shares in the event a registration statement covering the Conversion
Shares or the Exercise Shares is subject to amendment for events then current.
A form of opinion of counsel to the Company that the issuance of the Conversion
Shares and the Exercise Shares to the Holder will be exempt from registration
under the 1933 Act is attached hereto as Exhibit D. You have been authorized to
rely on such opinion as if it was addressed to you. A form of written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares has been declared effective by the SEC under
the 1933 Act is attached hereto as Exhibit E.
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Purchase Agreement and, accordingly, each Holder is a third
party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter please contact me at (▇▇▇) ▇▇▇-▇▇▇▇.
COMPANY SIGNATURE PAGE
TO
TRANSFER AGENT INSTRUCTIONS
COMPANY:
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
----------------------
Name: Max Toghraie
Title: CEO
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Continental Stock Transfer & Trust Company
▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: _________________
Re: CUMETRIX DATA SYSTEMS CORP.
Ladies and Gentlemen:
We are counsel to Cumetrix Data Systems Corp., a California corporation
(the "Company"), and have represented the Company in connection with that
certain Series 1 Bridge Note Purchase Agreement (the "Purchase Agreement") dated
August __. 2000 entered into by and among the Company and the purchasers named
therein (collectively, the "Holders") pursuant to which the Company issued to
the Holders shares of its Series 1 Bridge Notes and related warrants convertible
or exchangeable into the Company's common stock, without par value (the "Common
Stock"). Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") dated as of August __, 2000 pursuant to which the Company agreed,
among other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares under the Securities Act of 1933, as
amended (the "1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on ____________ ___, 2000, the Company filed a
Registration Statement on Form S-1 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge as of
the date hereof, after telephonic inquiry of a member of the SEC's staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.
Very truly yours,
[NAME OF FIRM]
cc: [LIST NAMES OF HOLDERS]
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED
UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
CUMETRIX DATA SYSTEMS CORP.
COMMON STOCK PURCHASE WARRANT
Warrant No. ____ __,000 shares
Original Issue Date: September 29, 2000
THIS CERTIFIES THAT, FOR VALUE RECEIVED, _______________ {Purchaser of
Bridge Notes} or its registered assigns ("Holder") is entitled to purchase, on
the terms and conditions hereinafter set forth, at any time or from time to time
from the date hereof until 5:00 p.m., Eastern Time, on fourth (4th) anniversary
of the Original Issue Date set forth above, or if such date is not a day on
which the Company (as hereinafter defined) is open for business, then the next
succeeding day on which the Company is open for business (such date is the
"Expiration Date"), but not thereafter, to purchase up to _______ THOUSAND
(___,000) shares of the Common Stock, without par value (the "Common Stock"), of
CUMETRIX DATA SYSTEMS CORP., a California corporation (the "Company"), at $____
per share [110% of the 5 day average closing bid price at closing] (the
"Exercise Price"), such number of shares and Exercise Price being subject to
adjustment upon the occurrence of the contingencies set forth in this Warrant.
Each share of Common Stock as to which this Warrant is exercisable is a "Warrant
Share" and all such shares are collectively referred to as the "Warrant Shares."
Capitalized terms used in this Warrant but not otherwise defined herein shall
have the meanings assigned to such terms in the Securities Purchase Agreement.
Section 1. Exercise of Warrant; Conversion of Warrant.
(a) This Warrant may, at the option of Holder, be exercised in
whole or in part from time to time by delivery to the Company at its office at
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: President, on or before
5:00 p.m., Eastern Time, on the Expiration Date, (i) a written notice of such
Holder's election to exercise this Warrant (the "Exercise Notice"), which notice
may be in the form of the Notice of Exercise attached hereto, properly executed
and completed by Holder or an authorized officer thereof, (ii) a check payable
to the order of the Company, in an amount equal to the product of the Exercise
Price multiplied by the number of Warrant Shares specified in the Exercise
Notice, and (iii) this Warrant (the items specified in (i), (ii), and (iii) are
collectively the "Exercise Materials").
(b) This Warrant may, at the option of Holder, be converted into
Common Stock in whole but not in part, if and only if the Average Market Price
of one share of Common Stock on the Effective Date (as defined in Section 1(c)
hereof) is greater than the Exercise Price, by delivery to the Company at the
address designated in Section 1(a) above or to any transfer agent for the Common
Stock, on or before 5:00 p.m. Eastern Time on the Expiration Date, (i) a written
notice of Holder's election to convert this Warrant (the "Conversion Notice"),
properly executed and completed by Holder or an authorized officer thereof, and
(ii) this Warrant (the items specified in (i) and (ii) are collectively the
"Conversion Materials"). The number of shares of Common Stock issuable upon
conversion of this
Warrant is equal to the quotient of (x) the product of the number of Warrant
Shares then issuable upon exercise of this Warrant (assuming an exercise for
cash) multiplied by the difference between (A) the Average Market Price on the
Effective Date minus (B) the then effective Exercise Price divided by (y) the
Average Market Price on the Effective Date. As used herein, "Average Market
Price" on any particular date means the arithmetic mean of the Closing Bid
Prices (as defined below) for the Common Stock for each trading day in the five
(5) trading day period ending on the trading day immediately preceding the date
on which the calculation is to be made. As used herein, "Closing Bid Price"
means, the last closing bid price of the Common Stock during regular trading
hours on the OTC Bulletin Board (the "OTCBB") as reported by Bloomberg Financial
Markets ("Bloomberg"), or, if the OTCBB is not the principal trading market for
the Common Stock, the last closing bid price during regular trading hours of the
Common Stock on the principal securities exchange or trading market where the
Common Stock is listed or traded as reported by Bloomberg, or if the foregoing
do not apply, the last closing bid price of the Common Stock in the over-the-
counter market on the pink sheets or bulletin board for the Common Stock as
reported by Bloomberg, or, if no closing bid price is reported for the Common
Stock by Bloomberg, the last closing trade price of the Common Stock as reported
by Bloomberg. If the Closing Bid Price cannot be calculated for the Common Stock
on such date on any of the foregoing bases, the Closing Bid Price of the Common
Stock on such date shall be the fair market value as reasonably determined in
good faith by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split, or other similar transaction
during such period).
(c) As promptly as practicable, and in any event within two (2)
business days after its receipt of the Exercise Materials or the Conversion
Materials, Company shall execute or cause to be executed and delivered to Holder
a certificate or certificates representing the number of Warrant Shares
specified in the Exercise Notice or Conversion Notice, together with cash in
lieu of any fraction of a share, and if this Warrant is partially exercised, a
new warrant on the same terms for the unexercised balance of the Warrant Shares.
The stock certificate or certificates shall be registered in the name of Holder
or such other name or names as shall be designated in the Exercise Notice. The
date on which the Warrant shall be deemed to have been exercised (the "Effective
Date"), and the date the person in whose name any certificate evidencing the
Common Stock issued upon the exercise hereof is issued shall be deemed to have
become the holder of record of such shares, shall be the date the Company
receives the Exercise Materials or Conversion Materials, irrespective of the
date of delivery of a certificate or certificates evidencing the Common Stock
issued upon the exercise or conversion hereof, provided, however, that if the
Exercise Materials or Conversion Materials are received by the Company on a date
on which the stock transfer books of the Company are closed, the Effective Date
shall be the next succeeding date on which the stock transfer books are open.
All shares of Common Stock issued upon the exercise or conversion of this
Warrant will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens, and charges with respect thereto.
(d) If the Company shall fail to issue, or cause the issuance,
to Holder within five (5) business days following the date of receipt by the
Company of the Exercise Materials or Conversion Materials, a certificate for the
number of shares of Common Stock to which Holder is entitled upon exercise of
this Warrant, in addition to all other available remedies which such holder may
pursue at law or in equity, including without limitation the rights to
indemnification pursuant to Section 6.18 of the Series 1 Bridge Note Purchase
and Security Agreement between the Company and the initial holder of the Warrant
(the "Securities Purchase Agreement"), the Company shall pay additional damages
to Holder on each day after the Effective Date until such certificate for the
Warrant Shares is received by Holder, an amount equal to 1.0% of the product of
(A) the number of Warrant Shares not issued to Holder and to which Holder is
entitled multiplied by (B) the Closing Bid Price of the Common Stock on the
Effective Date. Such damages shall be computed and due and payable daily.
2
Section 2. Adjustments to Warrant Shares. The number of Warrant Shares
issuable upon the exercise hereof shall be subject to adjustment as follows:
(a) In the event the Company is a party to a consolidation,
share exchange, or merger, or the sale of all or substantially all of the
assets of the Company to, any person, or in the case of any consolidation
or merger of another corporation into the Company in which the Company is
the surviving corporation, and in which there is a reclassification or
change of the shares of Common Stock of the Company, this Warrant shall
after such consolidation, share exchange, merger, or sale be exercisable
for the kind and number of securities or amount and kind of property of the
Company or the corporation or other entity resulting from such share
exchange, merger, or consolidation, or to which such sale shall be made, as
the case may be (the "Successor Company"), to which a holder of the number
of shares of Common Stock deliverable upon the exercise (immediately prior
to the time of such consolidation, share exchange, merger, or sale) of this
Warrant would have been entitled upon such consolidation, share exchange,
merger, or sale; and in any such case appropriate adjustments shall be made
in the application of the provisions set forth herein with respect to the
rights and interests of Holder, such that the provisions set forth herein
shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to the number and kind of securities or the type
and amount of property thereafter deliverable upon the exercise of this
Warrant. The above provisions shall similarly apply to successive
consolidations, share exchanges, mergers, and sales. Any adjustment
required by this Section 2 (a) because of a consolidation, share exchange,
merger, or sale shall be set forth in an undertaking delivered to Holder
and executed by the Successor Company which provides that Holder shall have
the right to exercise this Warrant for the kind and number of securities or
amount and kind of property of the Successor Company or to which the holder
of a number of shares of Common Stock deliverable upon exercise
(immediately prior to the time of such consolidation, share exchange,
merger, or sale) of this Warrant would have been entitled upon such
consolidation, share exchange, merger, or sale. Such undertaking shall also
provide for future adjustments to the number of Warrant Shares and the
Exercise Price in accordance with the provisions set forth in Section 2
hereof.
(b) In the event the Company should at any time, or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a stock split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock, or securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or exercise thereof), then,
as of such record date (or the date of such dividend, distribution, split,
or subdivision if no record date is fixed), the number of Warrant Shares
issuable upon the exercise hereof shall be proportionately increased and
the Exercise Price shall be appropriately decreased by the same proportion
as the increase in the number of outstanding Common Stock Equivalents of
the Company resulting from the dividend, distribution, split, or
subdivision. Notwithstanding the preceding sentence, no adjustment shall be
made to decrease the Exercise Price below $.001 per Share.
(c) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a reverse stock split, or a transaction having a similar effect on the
number of outstanding shares of Common Stock of the Company,
3
then, as of such record date (or the date of such reverse stock split or
similar transaction if no record date is fixed), the number of Warrant
Shares issuable upon the exercise hereof shall be proportionately decreased
and the Exercise Price shall be appropriately increased by the same
proportion as the decrease of the number of outstanding Common Stock
Equivalents resulting from the reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for a
reclassification of its Common Stock, then, as of such record date (or the
date of the reclassification if no record date is set), this Warrant shall
thereafter be convertible into such number and kind of securities as would
have been issuable as the result of such reclassification to a holder of a
number of shares of Common Stock equal to the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to such
reclassification, and the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate in order to protect the rights of Holder
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (x) will not create a par value of any share of
stock receivable upon the exercise of the Warrant above the amount payable
therefor upon such exercise, and (y) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares upon the exercise of the
Warrant.
(f) When any adjustment is required to be made in the number or
kind of shares purchasable upon exercise of the Warrant, or in the Exercise
Price, the Company shall promptly notify Holder of such event and of the
number of shares of Common Stock or other securities or property thereafter
purchasable upon exercise of the Warrants and of the Exercise Price,
together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Warrant Shares
which may be issued will, upon issuance, be validly issued, fully paid, and
non-assessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for
the exercise of the Warrant in full.
Section 3. No Stockholder Rights. This Warrant shall not entitle
Holder hereof to any voting rights or other rights as a stockholder of the
Company.
Section 4. Transfer of Securities.
(a) This Warrant and the Warrant Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon, or
otherwise, shall not be transferable except upon compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws with respect to the transfer of such
securities. The Holder, by acceptance of this Warrant, agrees to be bound
by the provisions of Section 4 hereof and to indemnify and hold harmless
the Company against any loss or liability arising from the disposition of
this Warrant or
4
the Warrant Shares issuable upon exercise hereof or any interest in either
thereof in violation of the provisions of this Warrant.
(b) Each certificate for the Warrant Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split or share
reclassification thereof, a stock dividend thereon or otherwise, and each
certificate for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER."
Section 5. Registration.
All Warrant Shares are subject to the rights and privileges granted in and
under the Registration Rights Agreement dated August __, 2000 as Registrable
Securities (as such term is defined in such Registration Rights Agreement).
Section 5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or permitted assigns of the Company and
Holder.
(b) Except as otherwise provided herein, this Warrant and all
rights hereunder are transferable by the registered holder hereof in person or
by duly authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and treat the
registered holder of this Warrant at any time as the absolute owner hereof for
all purposes and shall not be affected by any notice to the contrary.
(c) Notwithstanding any provision herein to the contrary, Holder
may not exercise, sell, transfer, or otherwise assign this Warrant unless the
Company is provided with an opinion of counsel satisfactory in form and
substance to the Company, to the effect that such exercise, sale, transfer, or
assignment would not violate the Securities Act or applicable state securities
laws.
(d) This Warrant may be divided into separate warrants covering
one share of Common Stock or any whole multiple thereof, for the total number of
shares of Common Stock then subject to this Warrant at any time, or from time to
time, upon the request of the registered holder of this Warrant and the
surrender of the same to the Company for such purpose. Such subdivided Warrants
shall be issued promptly by the Company following any such request and shall be
of the same form and tenor as this Warrant, except for any requested change in
the name of the registered holder stated herein.
(e) Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight
5
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Holder, to the registered address of Holder appearing on
the books of the Company. Each party shall provide five (5) days prior written
notice to the other party of any change in address, which change shall not be
effective until actual receipt thereof
(f) The corporate laws of the State of California shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Warrant shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Warrant in that jurisdiction or the
validity or enforceability of any provision of this Warrant in any other
jurisdiction.
[Signatures on the following page]
6
SIGNATURE PAGE
TO
COMPANY
COMMON STOCK PURCHASE WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed in
its name by its duly authorized officers under seal, and to be dated as of the
date first above written.
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
-----------------------
Name: Max Toghraie
Title: CEO
ATTEST:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Secretary/Assistant Secretary
[CORPORATE SEAL]
7
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers
unto ___________________________________________________________________________
the foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of CUMETRIX DATA SYSTEMS CORP. in accordance with terms and
conditions thereof, and does hereby irrevocably constitute and appoint
________________ Attorney to transfer the said Warrant on the books of the
Company, with full power of substitution.
Holder:
_________________________
_________________________
Address
Dated: ____________, 19__
In the presence of:
_________________________
EXERCISE OR CONVERSION NOTICE
[To be signed only upon exercise of Warrant]
To: CUMETRIX DATA SYSTEMS CORP.
The undersigned Holder of the attached Warrant hereby irrevocably elects to
exercise the Warrant for, and to purchase thereunder, _____ shares of Common
Stock of CUMETRIX DATA SYSTEMS CORP., issuable upon exercise of said Warrant and
hereby surrenders said Warrant.
Choose One:
The Holder herewith delivers to CUMETRIX DATA SYSTEMS CORP., a check
in the amount of $______ representing the Exercise Price for such
shares.
or
The Holder elects a cashless exercise pursuant to Section 2(b) of the
Warrant. The Average Market Price as of _______ was $_____.
The undersigned herewith requests that the certificates for such shares be
issued in the name of, and delivered to the undersigned, whose address is
________________________________.
If electronic book entry transfer, complete the following:
Account Number: _______________________
Transaction Code Number:_______________
Dated: ___________________
Holder:
________________________________
________________________________
By: ____________________________
Name:
Title:
NOTICE
The signature above must correspond to the name as written upon the face of
the within Warrant in every particular, without alteration or enlargement or any
change whatsoever.
COMPANY ACKNOWLEDGEMENT
TO
CONVERSION OR EXERCISE NOTICE
ACKNOWLEDGED AND AGREED:
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
___________________________
Name: Max Toghraie
Title: CEO
Date:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED
UNTIL (I) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
CUMETRIX DATA SYSTEMS CORP.
COMMON STOCK PURCHASE WARRANT
Warrant No. S-1 75,000 shares
Original Issue Date: August 9, 2000
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Sovereign Capital Advisors, LLC or
its registered assigns ("Holder") is entitled to purchase, on the terms and
conditions hereinafter set forth, at any time or from time to time from the date
hereof until 5:00 p.m., Eastern Time, on fourth (4th) anniversary of the
Original Issue Date set forth above, or if such date is not a day on which the
Company (as hereinafter defined) is open for business, then the next succeeding
day on which the Company is open for business (such date is the "Expiration
Date"), but not thereafter, to purchase up to SEVEN FIVE THOUSAND (75,000)
shares of the Common Stock,without par value (the "Common Stock"), of CUMETRIX
DATA SYSTEMS CORP., a California corporation (the "Company"), at $____ per share
(the "Exercise Price"), such number of shares and Exercise Price being subject
to adjustment upon the occurrence of the contingencies set forth in this
Warrant. Each share of Common Stock as to which this Warrant is exercisable is a
"Warrant Share" and all such shares are collectively referred to as the "Warrant
Shares." Capitalized terms used in this Warrant but not otherwise defined herein
shall have the meanings assigned to such terms in the Securities Purchase
Agreement.
Section 1. Exercise of Warrant; Conversion of Warrant.
(a) This Warrant may, at the option of Holder, be exercised in
whole or in part from time to time by delivery to the Company at its office at
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: President, on or before
5:00 p.m., Eastern Time, on the Expiration Date, (i) a written notice of such
Holder's election to exercise this Warrant (the "Exercise Notice"), which notice
may be in the form of the Notice of Exercise attached hereto, properly executed
and completed by Holder or an authorized officer thereof, (ii) a check payable
to the order of the Company, in an amount equal to the product of the Exercise
Price multiplied by the number of Warrant Shares specified in the Exercise
Notice, and (iii) this Warrant (the items specified in (i), (ii), and (iii) are
collectively the "Exercise Materials").
(b) This Warrant may, at the option of Holder, be converted into
Common Stock in whole but not in part, if and only if the Average Market Price
of one share of Common Stock on the Effective Date (as defined in Section 1(c)
hereof) is greater than the Exercise Price, by delivery to the Company at the
address designated in Section 1(a) above or to any transfer agent for the Common
Stock, on or before 5:00 p.m. Eastern Time on the Expiration Date, (i) a written
notice of Holder's election to convert this Warrant (the "Conversion Notice"),
properly executed and completed by Holder or an authorized officer thereof, and
(ii) this Warrant (the items specified in (i) and (ii) are collectively the
"Conversion Materials"). The number of shares of Common Stock issuable upon
conversion of this Warrant is equal to the quotient of (x) the product of the
number of Warrant Shares then issuable upon
exercise of this Warrant (assuming an exercise for cash) multiplied by the
difference between (A) the Average Market Price on the Effective Date minus (B)
the then effective Exercise Price divided by (y) the Average Market Price on the
Effective Date. As used herein, "Average Market Price" on any particular date
means the arithmetic mean of the Closing Bid Prices (as defined below) for the
Common Stock for each trading day in the five (5) trading day period ending on
the trading day immediately preceding the date on which the calculation is to be
made. As used herein, "Closing Bid Price" means, the last closing bid price of
the Common Stock during regular trading hours on the OTC Bulletin Board (the
"OTCBB") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
OTCBB is not the principal trading market for the Common Stock, the last closing
bid price during regular trading hours of the Common Stock on the principal
securities exchange or trading market where the Common Stock is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of the Common Stock in the over-the-counter market on the pink sheets or
bulletin board for the Common Stock as reported by Bloomberg, or, if no closing
bid price is reported for the Common Stock by Bloomberg, the last closing trade
price of the Common Stock as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for the Common Stock on such date on any of the foregoing
bases, the Closing Bid Price of the Common Stock on such date shall be the fair
market value as reasonably determined in good faith by the Board of Directors of
the Company (all as appropriately adjusted for any stock dividend, stock split,
or other similar transaction during such period).
(c) As promptly as practicable, and in any event within two (2)
business days after its receipt of the Exercise Materials or the Conversion
Materials, Company shall execute or cause to be executed and delivered to Holder
a certificate or certificates representing the number of Warrant Shares
specified in the Exercise Notice or Conversion Notice, together with cash in
lieu of any fraction of a share, and if this Warrant is partially exercised, a
new warrant on the same terms for the unexercised balance of the Warrant Shares.
The stock certificate or certificates shall be registered in the name of Holder
or such other name or names as shall be designated in the Exercise Notice. The
date on which the Warrant shall be deemed to have been exercised (the "Effective
Date"), and the date the person in whose name any certificate evidencing the
Common Stock issued upon the exercise hereof is issued shall be deemed to have
become the holder of record of such shares, shall be the date the Company
receives the Exercise Materials or Conversion Materials, irrespective of the
date of delivery of a certificate or certificates evidencing the Common Stock
issued upon the exercise or conversion hereof, provided, however, that if the
Exercise Materials or Conversion Materials are received by the Company on a date
on which the stock transfer books of the Company are closed, the Effective Date
shall be the next succeeding date on which the stock transfer books are open.
All shares of Common Stock issued upon the exercise or conversion of this
Warrant will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens, and charges with respect thereto.
(d) If the Company shall fail to issue, or cause the issuance,
to Holder within five (5) business days following the date of receipt by the
Company of the Exercise Materials or Conversion Materials, a certificate for the
number of shares of Common Stock to which Holder is entitled upon exercise of
this Warrant, in addition to all other available remedies which such holder may
pursue at law or in equity, including without limitation the rights to
indemnification pursuant to Section 6.18 of the Series 1 Bridge Note Purchase
and Security Agreement between the Company and the initial holder of the Warrant
(the "Securities Purchase Agreement"), the Company shall pay additional damages
to Holder on each day after the Effective Date until such certificate for the
Warrant Shares is received by Holder, an amount equal to 1.0% of the product of
(A) the number of Warrant Shares not issued to Holder and to which Holder is
entitled multiplied by (B) the Closing Bid Price of the Common Stock on the
Effective Date. Such damages shall be computed and due and payable daily.
2
Section 2. Adjustments to Warrant Shares. The number of Warrant Shares
issuable upon the exercise hereof shall be subject to adjustment as follows:
(a) In the event the Company is a party to a consolidation,
share exchange, or merger, or the sale of all or substantially all of the
assets of the Company to, any person, or in the case of any consolidation
or merger of another corporation into the Company in which the Company is
the surviving corporation, and in which there is a reclassification or
change of the shares of Common Stock of the Company, this Warrant shall
after such consolidation, share exchange, merger, or sale be exercisable
for the kind and number of securities or amount and kind of property of the
Company or the corporation or other entity resulting from such share
exchange, merger, or consolidation, or to which such sale shall be made, as
the case may be (the "Successor Company"), to which a holder of the number
of shares of Common Stock deliverable upon the exercise (immediately prior
to the time of such consolidation, share exchange, merger, or sale) of this
Warrant would have been entitled upon such consolidation, share exchange,
merger, or sale; and in any such case appropriate adjustments shall be made
in the application of the provisions set forth herein with respect to the
rights and interests of Holder, such that the provisions set forth herein
shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to the number and kind of securities or the type
and amount of property thereafter deliverable upon the exercise of this
Warrant. The above provisions shall similarly apply to successive
consolidations, share exchanges, mergers, and sales. Any adjustment
required by this Section 2 (a) because of a consolidation, share exchange,
merger, or sale shall be set forth in an undertaking delivered to Holder
and executed by the Successor Company which provides that Holder shall have
the right to exercise this Warrant for the kind and number of securities or
amount and kind of property of the Successor Company or to which the holder
of a number of shares of Common Stock deliverable upon exercise
(immediately prior to the time of such consolidation, share exchange,
merger, or sale) of this Warrant would have been entitled upon such
consolidation, share exchange, merger, or sale. Such undertaking shall also
provide for future adjustments to the number of Warrant Shares and the
Exercise Price in accordance with the provisions set forth in Section 2
hereof.
(b) In the event the Company should at any time, or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a stock split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock, or securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or exercise thereof), then,
as of such record date (or the date of such dividend, distribution, split,
or subdivision if no record date is fixed), the number of Warrant Shares
issuable upon the exercise hereof shall be proportionately increased and
the Exercise Price shall be appropriately decreased by the same proportion
as the increase in the number of outstanding Common Stock Equivalents of
the Company resulting from the dividend, distribution, split, or
subdivision. Notwithstanding the preceding sentence, no adjustment shall be
made to decrease the Exercise Price below $.001 per Share.
(c) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for the effectuation
of a reverse stock split, or a transaction having a similar effect on the
number of outstanding shares of Common Stock of the Company,
3
then, as of such record date (or the date of such reverse stock split or
similar transaction if no record date is fixed), the number of Warrant
Shares issuable upon the exercise hereof shall be proportionately decreased
and the Exercise Price shall be appropriately increased by the same
proportion as the decrease of the number of outstanding Common Stock
Equivalents resulting from the reverse stock split or similar transaction.
(d) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for a
reclassification of its Common Stock, then, as of such record date (or the
date of the reclassification if no record date is set), this Warrant shall
thereafter be convertible into such number and kind of securities as would
have been issuable as the result of such reclassification to a holder of a
number of shares of Common Stock equal to the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to such
reclassification, and the Exercise Price shall be unchanged.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance of
any of the terms of the Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate in order to protect the rights of Holder
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (x) will not create a par value of any share of
stock receivable upon the exercise of the Warrant above the amount payable
therefor upon such exercise, and (y) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares upon the exercise of the
Warrant.
(f) When any adjustment is required to be made in the number or
kind of shares purchasable upon exercise of the Warrant, or in the Exercise
Price, the Company shall promptly notify Holder of such event and of the
number of shares of Common Stock or other securities or property thereafter
purchasable upon exercise of the Warrants and of the Exercise Price,
together with the computation resulting in such adjustment.
(g) The Company covenants and agrees that all Warrant Shares
which may be issued will, upon issuance, be validly issued, fully paid, and
non-assessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for
the exercise of the Warrant in full.
Section 3. No Stockholder Rights. This Warrant shall not entitle Holder
hereof to any voting rights or other rights as a stockholder of the Company.
Section 4. Transfer of Securities.
(a) This Warrant and the Warrant Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon, or
otherwise, shall not be transferable except upon compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws with respect to the transfer of such
securities. The Holder, by acceptance of this Warrant, agrees to be bound
by the provisions of Section 4 hereof and to indemnify and hold harmless
the Company against any loss or liability arising from the disposition of
this Warrant or
4
the Warrant Shares issuable upon exercise hereof or any interest in either
thereof in violation of the provisions of this Warrant.
(b) Each certificate for the Warrant Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split or share
reclassification thereof, a stock dividend thereon or otherwise, and each
certificate for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND NEITHER MAY BE
SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) THE COMPANY SHALL
HAVE RECEIVED A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER."
Section 5. Registration.
All Warrant Shares are subject to the rights and privileges granted in and
under the Registration Rights Agreement dated August 9, 2000 as Registrable
Securities (as such term is defined in such Registration Rights Agreement).
Section 5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or permitted assigns of the Company and
Holder.
(b) Except as otherwise provided herein, this Warrant and all
rights hereunder are transferable by the registered holder hereof in person or
by duly authorized attorney on the books of the Company upon surrender of this
Warrant, properly endorsed, to the Company. The Company may deem and treat the
registered holder of this Warrant at any time as the absolute owner hereof for
all purposes and shall not be affected by any notice to the contrary.
(c) Notwithstanding any provision herein to the contrary, Holder
may not exercise, sell, transfer, or otherwise assign this Warrant unless the
Company is provided with an opinion of counsel satisfactory in form and
substance to the Company, to the effect that such exercise, sale, transfer, or
assignment would not violate the Securities Act or applicable state securities
laws.
(d) This Warrant may be divided into separate warrants covering
one share of Common Stock or any whole multiple thereof, for the total number of
shares of Common Stock then subject to this Warrant at any time, or from time to
time, upon the request of the registered holder of this Warrant and the
surrender of the same to the Company for such purpose. Such subdivided Warrants
shall be issued promptly by the Company following any such request and shall be
of the same form and tenor as this Warrant, except for any requested change in
the name of the registered holder stated herein.
(e) Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested, (c) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (d) one
(1) day after deposit with a nationally recognized overnight
5
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to Company: Cumetrix Data Systems Corp.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Holder, to the registered address of Holder appearing on
the books of the Company. Each party shall provide five (5) days prior written
notice to the other party of any change in address, which change shall not be
effective until actual receipt thereof
(f) The corporate laws of the State of California shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Warrant shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Warrant in that jurisdiction or the
validity or enforceability of any provision of this Warrant in any other
jurisdiction.
[Signatures on the following page]
6
SIGNATURE PAGE
TO
COMPANY
COMMON STOCK PURCHASE WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed in
its name by its duly authorized officers under seal, and to be dated as of the
date first above written.
CUMETRIX DATA SYSTEMS CORP.
By: /s/ Max Toghraie
---------------------
Name: Max Toghraie
Title: CEO
ATTEST:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Secretary/Assistant Secretary
[CORPORATE SEAL]
7
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and transfers
unto ___________________________________________________________________________
the foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of CUMETRIX DATA SYSTEMS CORP. in accordance with terms and
conditions thereof, and does hereby irrevocably constitute and appoint
________________ Attorney to transfer the said Warrant on the books of the
Company, with full power of substitution.
Holder:
_________________________
_________________________
Address
Dated: ____________, 19__
In the presence of:
_________________________
EXERCISE OR CONVERSION NOTICE
[To be signed only upon exercise of Warrant]
To: CUMETRIX DATA SYSTEMS CORP.
The undersigned Holder of the attached Warrant hereby irrevocably elects to
exercise the Warrant for, and to purchase thereunder, _____ shares of Common
Stock of CUMETRIX DATA SYSTEMS CORP., issuable upon exercise of said Warrant and
hereby surrenders said Warrant.
Choose One:
The Holder herewith delivers to CUMETRIX DATA SYSTEMS CORP., a check
in the amount of $______ representing the Exercise Price for such
shares.
or
The Holder elects a cashless exercise pursuant to Section 2(b) of the
Warrant. The Average Market Price as of _______ was $_____.
The undersigned herewith requests that the certificates for such shares be
issued in the name of, and delivered to the undersigned, whose address is
________________________________.
If electronic book entry transfer, complete the following:
Account Number: ________________________
Transaction Code Number: _______________
Dated: ___________________
Holder:
_____________________________
_____________________________
By: _________________________
Name:
Title:
NOTICE
The signature above must correspond to the name as written upon the face of
the within Warrant in every particular, without alteration or enlargement or any
change whatsoever.
COMPANY ACKNOWLEDGEMENT
TO
CONVERSION OR EXERCISE NOTICE
ACKNOWLEDGED AND AGREED:
CUMETRIX DATA SYSTEMS CORP.
By: _______________________
Name:
Title:
Date:
