EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of August 1, 2005 (this
"Agreement"), is entered into by and between SUPERCLICK, INC., a Washington
corporation with headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and each individual or entity named on an
executed counterpart of the signature page hereto (each such signatory is
referred to as a "Buyer") (each agreement with a Buyer being deemed a separate
and independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer (each,
an "Other Buyer") under such agreement and the Transaction Agreements, as
defined below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration for offers
and sales to accredited investors afforded, inter alia, by Rule 506 under
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to lend to the Company, subject to and
upon the terms and conditions of this Agreement and acceptance of this Agreement
by the Company, the Purchase Price (as defined below), the repayment of which
will be represented by Senior Secured Convertible Debentures Series 05-01 of the
Company (the "Secured Convertible Debentures") and Unsecured Convertible
Debentures Series 06-01 of the Company (the "Unsecured Convertible Debentures,"
and together with the Convertible Debentures, collectively, the "Convertible
Debentures" or the "Debentures"), which Convertible Debentures will be
convertible into shares of Common Stock, $0.0006 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
such Convertible Debentures, together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject to the terms and conditions of this Agreement and the
other Transaction Agreements, the undersigned Buyer hereby agrees to loan to the
Company the principal amount set forth on the Buyer's signature page of this
Agreement (the "Purchase Price"), out of the aggregate amount being loaned by
all Buyers of US $2,250,000 (the "Aggregate Purchase Price"). The obligation to
repay the loan from the Buyer shall be evidenced by the Company's issuance of
one or more Secured Convertible Debentures and one or more Unsecured Convertible
Debentures to the Buyer in such principal amounts set forth on the Buyer's
signature page of this Agreement. Each Debenture (i) shall provide for a
Conversion Price (as defined below), which price may be adjusted from time to
time as provided in the Debenture, and (ii) shall have the terms and conditions
of, and be substantially in the form attached hereto as, Annex I. Each Secured
Convertible Debenture shall be secured pursuant to the terms of the Security
Interest Agreement substantially in the form annexed hereto as Annex IX (the
"Security Interest Agreement").
(ii) The loan to be made by the Buyer and the issuance of the
Debentures and the Warrants (collectively, the "Purchased Securities") to the
Buyer are sometimes referred to herein and in the other Transaction Agreements
as the purchase and sale of the Debentures and the Warrants.
b. Certain Definitions. As used herein, each of the following terms
has the meaning set forth below, unless the context otherwise requires:
"Additional Closing Date" means the date of any closing of the
purchase and sale of the Purchased Securities subsequent to the Initial Closing
Date.
"Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
"Buyer Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Buyer
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Certificates" means the (x) the original ink-signed Debentures and
(y) the original ink-signed Warrants, each duly executed by the Company and
issued in the name of the Buyer on a Closing Date.
"Closing Date" means the Initial Closing Date or an Additional
Closing Date, as applicable.
"Closing Price" means the 4:00 P.M. closing bid price of a share of
Common Stock on the Principal Trading Market on the relevant Trading Day, as
reported by the Reporting Service.
"Company Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Company
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"Company Principal's Agreement" has the meaning ascribed to in
Section 4(h).
"Company's SEC Documents" means the Company's filings on the SEC's
▇▇▇▇▇ system which are listed on Annex VII annexed hereto, to the extent
available on ▇▇▇▇▇ or otherwise provided to the Buyer as indicated on said Annex
VII.
"Conversion Certificates" means certificates representing the
Conversion Shares.
"Conversion Date" means the date a Holder submits a Notice of
Conversion, as provided in the Debentures.
"Conversion Price" means the Pre-Maturity Date Conversion Price or
the Post-Maturity Date Conversion Price, as applicable.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures and/or in payment of accrued interest, as
contemplated in the Debentures.
"Converting Holder" means the Holder of Debentures who or which has
submitted a Notice of Conversion (as contemplated by the Debentures).
"Disclosure Annex" means Annex VI to this Agreement; provided,
however, that the Disclosure Annex shall be arranged in sections corresponding
to the identified Sections of this Agreement, but the disclosure in any such
section of the Disclosure Annex shall qualify other provisions in this Agreement
to the extent that it would be readily apparent to an informed reader from a
reading of such section of the Disclosure Annex that it is also relevant to
other provisions of this Agreement.
"Effective Percentage" means the Pre-Maturity Effective Percentage
and/or the Post-Maturity Effective Percentage, as applicable.
"Effective Date" means the date the Registration Statement covering
the Registrable Securities is declared effective by the SEC.
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"Escrow Agent" means the escrow agent identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions").
"Escrow Funds" means the Purchase Price delivered to the Escrow
Agent as contemplated by Sections 1(c) and (d) hereof.
"Escrow Property" means the Escrow Funds and the Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.
"Exercise Price" means the per share exercise price of the relevant
Warrant.
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Initial Closing Date" means August 1, 2005, the initial date of the
closing of the purchase and sale of the Purchased Securities.
"Issue Date Conversion Share" means the number of shares of Common
Stock equal to (i) the Purchase Price paid by the Buyer, divided by the
Conversion Price on a Closing Date.
"Last Audited Date" means October 31, 2004.
"Majority in Interest of the Holders" means one or more Holders
whose respective outstanding principal amounts of the Debentures held by each of
them, as of the relevant date, aggregate more than fifty percent (50%) of the
aggregate outstanding principal amounts of the Unconverted Debentures held by
the Buyer and all Other Buyers on that date.
"Material Adverse Effect" means an event or combination of events,
which individually or in the aggregate, would reasonably be expected to (x)
adversely affect the legality, validity or enforceability of the Purchased
Securities or any of the Transaction Agreements, (y) have or result in a
material adverse effect on the results of operations, assets, prospects or
financial condition of the Company and its subsidiaries, taken as a whole, or
(z) adversely impair the Company's ability to perform fully on a timely basis
its material obligations under any of the Transaction Agreements or the
transactions contemplated thereby.
"Maturity Date" shall have the meaning ascribed to it in the
Convertible Debentures.
"New Common Stock" means shares of Common Stock and/or securities
convertible into, and/or other rights exercisable for, Common Stock, which are
offered or sold in a New Transaction. "New Transaction Investor" means the third
party investor, purchaser or lender (howsoever denominated) in a New
Transaction.
"New Transaction" means, unless consented to by a Majority in
Interest of the Buyers (which consent is in the sole discretion of the Holders
and may be withheld for any reason or for no reason whatsoever), the sale of New
Common Stock by or on behalf of the Company to a New Transaction Investor in a
transaction offered or consummated after the date hereof; provided, however,
that it is specifically understood that the term "New Transaction" (1) unless
consented to otherwise by a Majority in Interest of the Buyers (which consent is
in the sole discretion of the Holders and may be withheld for any reason or for
no reason whatsoever), includes, but is not limited to, a sale of Common Stock
or of a security convertible into Common Stock or an equity or credit line
transaction, but (2) does not include (a) the sale of the Purchased Securities
to the Buyer and the Other Buyers, (b) the issuance of Common Stock upon the
exercise or conversion of options, warrants or convertible securities
outstanding on the date hereof, or in respect of any other financing agreements
as in effect on the date hereof and identified in the Disclosure Annex (provided
the same is not amended after the date hereof) or in the Company's SEC Documents
(provided the same is not amended after the date hereof), (c) the issuance of
Common Stock pursuant to the Superclick 2004 Incentive Stock Option Plan (the
"ESOP") (provided the same is not amended after the date hereof), (d) the
issuance of up to 1,500,000 shares of Common Stock pursuant to a duly adopted
stock incentive or stock option plan (whether such plan or plans, individually
or in the aggregate, contemplate issuances of shares to employees, officers,
directors, non-employee directors or consultants), but only to the extent that
such options are incentive stock options and have an exercise price of not less
than $0.50 per share, or (e) the issuance of Common Stock upon the exercise of
any options or warrants referred to in any one of the preceding clauses of this
paragraph.
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"Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership, limited liability company or
trust.
"Pre-Maturity Date Conversion Price" means, with respect to the
Pre-Maturity Date Period, (i) the average Closing Price for the forty five (45)
Trading Days ending on the Trading Day immediately before the Conversion Date
(as selected by the Holder), multiplied by (ii) a percentage equal to (x) one
hundred percent (100%), less (y) the Pre-Maturity Effective Percentage
(provided, however, that such amount shall be recomputed for all Unconverted
Debentures if the Pre-Maturity Effective Percentage is adjusted as contemplated
by this Agreement or the Debentures); provided, however, that the Pre-Maturity
Date Conversion Price shall not be less than Thirty Cents ($0.30) per share (as
that amount may subsequently be adjusted as provided in the Debentures or
herein); provided, further, that, with respect to each such amount referred to
in this definition, as that amount may subsequently be adjusted as provided in
the Debentures or herein. Notwithstanding the foregoing, if the Closing Price is
less than $0.50 per share on a Conversion Date during the Pre-Maturity Date
Period, then during the calendar month in which such Conversion Date falls, a
Converting Holder may not convert an aggregate amount (including principal and
interest) in excess of $175,000; provided, however, that the foregoing
limitation shall not be applicable in the event that the Closing Price on such
Conversion Date is equal to or exceeds 150% of the average Closing Price for the
ten (10) Trading Days ending on the Trading Day immediately before the
Conversion Date.
"Pre-Maturity Date Period" means the period commencing on the date
of this Agreement and ending on the Maturity Date.
"Pre-Maturity Effective Percentage" means, initially thirty percent
(30%), which percentage is subject to increase as provided herein.
"Post-Maturity Date Conversion Price" means, with respect to the
Post-Maturity Date Period, (i) the average Closing Price for the forty five (45)
Trading Days ending on the Trading Day immediately before the Conversion Date
(as selected by the Holder), multiplied by (ii) a percentage equal to (x) one
hundred percent (100%), less (y) the Post-Maturity Effective Percentage
(provided, however, that such amount shall be recomputed for all Unconverted
Debentures if the Post-Maturity Effective Percentage is adjusted as contemplated
by this Agreement or the Debentures); provided, however, that, with respect to
each such amount referred to in this definition, as that amount may subsequently
be adjusted as provided in the Debentures or herein.
"Post-Maturity Date Period" means the period commencing immediately
following the Maturity Date.
"Post-Maturity Effective Percentage" means, initially twenty percent
(20%),, which percentage is subject to increase as provided herein.
"Placement Agent" means Ascendiant Securities, LLC, a registered
broker-dealer.
"Principal Trading Market" means the Over the Counter Bulletin Board
or such other market on which the Common Stock is principally traded at the
relevant time.
"Registrable Securities" shall have the meaning ascribed to it in
the Registration Rights Agreement.
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"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as Annex IV as executed by the Buyer and
the Company simultaneously with the execution of this Agreement.
"Registration Statement" means an effective registration statement
covering the Registrable Securities.
"Reporting Service" means Bloomberg LP or if that service is not
then reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by a Majority in Interest of
the Holders and reasonably acceptable to the Company.
"SBA Compliance Documents" has the meaning ascribed to it in Section
4(p) hereof.
"Securities" means the Purchased Securities and the Shares.
"Shares" means the shares of Common Stock representing any or all of
the Conversion Shares, the Warrant Shares and the Payment Shares (as defined in
the Registration Rights Agreement).
"State of Incorporation" means Washington State.
"Strategic Partner" means a third party, whether or not affiliated
with the Company as of the date hereof, which party (i) is engaged in a business
which is the business in which the Company is engaged or a similar, related or
complementary business, and (ii) subsequently purchases equity securities of the
Company (or securities convertible into equity securities of the Company), where
such purchase is accompanied or followed by one or more of the following: the
licensing by the Company of all or any portion of its technology to such third
party, the licensing by such third party of all or any portion of its technology
to the Company, or any other coordination of all or a portion of their
respective business activities or operations by the Company and such third
party.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transaction Agreements" means this Agreement, the Debentures, the
Joint Escrow Instructions, the Registration Rights Agreement, the Disclosure
Annex, the Security Interest Agreement, and the Warrants, and includes all
ancillary documents referred to in those agreements.
"Transfer Agent" means, at any time, the transfer agent for the
Company's Common Stock.
"Unconverted Debenture" means, as of any given date, the principal
amount of any then outstanding Debenture.
"Warrants" means (i) the warrants referred to in Section 4 hereof
and (ii) the Additional Warrants (as defined below), if any.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price by delivering immediately
available good funds in United States Dollars to the Escrow Agent no later than
the day prior to the Closing Date.
(ii) Within one (1) Trading Day after the Escrow Agent notifies the
Company that the Escrow Agent has on deposit cleared funds from or on behalf of
one or more Buyers an aggregate amount equal to the Aggregate Purchase Price and
the Company shall have accepted the Buyer's subscription hereunder, but in no
event later than the Closing Date, the Company will deliver the Certificates to
the Escrow Agent. Such Certificates shall be held in escrow as provided in the
Joint Escrow Instructions.
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(iii) By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. Method of Payment. Payment into escrow of the Purchase Price
shall be made by wire transfer of funds to:
Bank One
Chicago, Illinois
ABA# ▇▇▇▇▇▇▇▇▇
Acct. #: 18108830
Acct. Name: Wildman, Harrold, ▇▇▇▇▇ & ▇▇▇▇▇ Trust Acct.
Reference: Superclick 05 Transaction/[Name of Buyer]
e. Additional Closings. Notwithstanding any provision in this
Agreement or any other Transaction Documents to the contrary, the Company
acknowledges and agrees that: (i) the closing on the loan to the Company of the
Aggregate Purchase Price by all Buyers and the related purchase of the Purchased
Securities by the Buyers and all other transactions contemplated by the
Transaction Documents, shall occur on the Initial Closing Date, plus one or more
Additional Closing Dates; and (ii) on each Additional Closing Date, the Company
shall have the irrevocable obligation to enter into the Transaction Documents in
the same form as that entered into by the Buyer on the Initial Closing Date, and
to otherwise issue the Purchased Securities to such additional Buyers on the
same terms and conditions.
2. BUYER REPRESENTATIONS AND WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Securities pursuant to
an effective registration statement or otherwise in compliance with the 1933
Act, the Buyer is purchasing the Securities for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act, (ii)
experienced in making investments of the kind described in this Agreement and
the other Transaction Agreements, (iii) able, by reason of the business and
financial experience of its officers (if an entity) and professional advisors
(who are not affiliated with or compensated in any way by the Company or any of
its Affiliates or selling agents), to protect its own interests in connection
with the transactions described in this Agreement and the other Transaction
Agreements, and to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Securities by the Buyer
shall be made pursuant to registration of the relevant Securities under the 1933
Act or pursuant to an exemption from such registration.
d. The Buyer understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.
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e. The Buyer and its advisors, if any, have been furnished with or
have been given access to all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Purchased Securities which have been requested by the Buyer, including those set
forth in any annex attached hereto. The Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and its management
and have received complete and satisfactory answers to any such inquiries.
Without limiting the generality of the foregoing, the Buyer has also had the
opportunity to obtain and to review the Company's SEC Documents.
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. In connection with its purchase of the Securities, the Buyer has
not relied on any statement or representation by the Company or the Placement
Agent or any of their respective officers, directors and employees or any of
their respective attorneys or agents or the Placement Agent, except as
specifically set forth herein. The Placement Agent is a third party beneficiary
of this provision.
h. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
i. This Agreement and the other Transaction Agreements to which the
Buyer is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Buyer and are valid
and binding agreements of the Buyer enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS. The Company represents and warrants to
the Buyer as of the date hereof and as of each Closing Date that, except as
otherwise provided in the Disclosure Annex or in the Company's SEC Documents:
a. Rights of Others Affecting the Transactions. There are no
preemptive rights of any shareholder of the Company to acquire the Purchased
Securities or the Shares. No other party has a currently exercisable right of
first refusal which would be applicable to any or all of the transactions
contemplated by the Transaction Agreements.
b. Status. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is quoted on the Over the Counter Bulletin Board.
The Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such quotation on the Over the
Counter Bulletin Board, and the Company has maintained all requirements on its
part for the continuation of such quotation.
c. Authorized Shares.
(i) The authorized capital stock of the Company consists of (i)
120,000,000 shares of Common Stock, par value $.0006 per share, of which
approximately 27,583,113 are outstanding as of August 1, 2005, and (ii)
20,000,000 shares of Preferred Stock, par value $.0001 per share, none of which
is outstanding as of the date hereof.
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(ii) There are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future. If any such securities are listed on the Disclosure Annex but not in the
Company's SEC Documents, the number or amount of each such outstanding
convertible security and the conversion terms are set forth in said Disclosure
Annex.
(iii) All issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable. The
Company has sufficient authorized and unissued shares of Common Stock as may be
necessary to effect the issuance of the Shares on the Closing Date and each
Additional Closing Date.
(iv) The Shares shall have been duly authorized by all necessary
corporate action on the part of the Company, and, when issued on conversion of,
or in payment of interest on, the Debentures or upon exercise of the Warrants,
in each case in accordance with their respective terms, will have been duly and
validly issued, fully paid and non-assessable and will not subject the Holder
thereof to personal liability by reason of being such Holder.
d. Transaction Agreements and Stock. This Agreement and each of the
other Transaction Agreements, and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Company, this Agreement
has been duly executed and delivered by the Company and this Agreement is, and
the Debentures, the Warrants and each of the other Transaction Agreements, when
executed and delivered by the Company, will be, valid and binding obligations of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. Non-contravention. The execution and delivery of this Agreement
and each of the other Transaction Agreements by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Debentures, the Warrants and the other
Transaction Agreements do not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under (i) the certificate of incorporation or by-laws of the Company, each as
currently in effect, (ii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, including any listing agreement
for the Common Stock except as herein set forth, or (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have or result in a Material Adverse Effect.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. Filings. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Since May 1, 2004, the Company has filed all requisite
forms, reports and exhibits thereto required to be filed by the Company with the
SEC.
h. Absence of Certain Changes. Since the Last Audited Date, there
has been no Material Adverse Effect, except as disclosed in the Company's SEC
Documents. Since the Last Audited Date, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to shareholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled any material debts
owed to the Company by any third party or material claims of the Company against
any third party, except in the ordinary course of business consistent with past
practices; (v) waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
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i. Full Disclosure. To the Company's knowledge, there is no fact
known to the Company (other than facts known to the public generally or as
disclosed in the Company's SEC Documents) that has not been disclosed in writing
to the Buyer that would reasonably be expected to have or result in a Material
Adverse Effect.
j. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
before or by any governmental authority or non-governmental department,
commission, board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of the
Transaction Agreements. The Company is not aware of any valid basis for any such
claim that (either individually or in the aggregate with all other such events
and circumstances) could reasonably be expected to have a Material Adverse
Effect. There are no outstanding or unsatisfied judgments, orders, decrees,
writs, injunctions or stipulations to which the Company is a party or by which
it or any of its properties is bound, that involve the transaction contemplated
herein or that, alone or in the aggregate, could reasonably be expect to have a
Material Adverse Effect.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company or its subsidiary is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a Material Adverse
Effect.
l. Absence of Certain Company Control Person Actions or Events. To
the Company's knowledge, none of the following has occurred during the past five
(5) years with respect to a Company Control Person:
(i) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such Company
Control Person, or any partnership in which he was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two years before
the time of such filing;
(ii) Such Company Control Person was convicted in a criminal
proceeding or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(iii) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him from,
or otherwise limiting, the following activities:
(A) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, any other Person regulated by the Commodity
Futures Trading Commission ("CFTC") or engaging in or continuing any
conduct or practice in connection with such activity;
9
(B) engaging in any type of business practice; or
(C) engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities
laws;
(D) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated,
of any federal or state authority barring, suspending or otherwise
limiting for more than 60 days the right of such Company Control
Person to engage in any activity described in paragraph (3) of this
item, or to be associated with Persons engaged in any such activity;
or
(E) Such Company Control Person was found by a court of
competent jurisdiction in a civil action or by the CFTC or SEC to
have violated any federal or state securities law, and the judgment
in such civil action or finding by the CFTC or SEC has not been
subsequently reversed, suspended, or vacated.
m. No Undisclosed Liabilities or Events. No event or circumstances
has occurred or exists with respect to the Company or its properties, business,
operations, condition (financial or otherwise), or results of operations, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed. There are no proposals currently under
consideration or currently anticipated to be under consideration by the Board of
Directors or the executive officers of the Company which proposal would (x)
change the articles or certificate of incorporation or other charter document or
by-laws of the Company, each as currently in effect, with or without shareholder
approval, which change would reduce or otherwise adversely affect the rights and
powers of the shareholders of the Common Stock or (y) materially or
substantially change the business, assets or capital of the Company, including
its interests in subsidiaries.
n. No Integrated Offering. Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since December 1, 2004, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
o. Dilution. The number of shares issuable on conversion of the
Debentures, upon exercise of the Warrants or pursuant to the other terms of the
Transaction Agreements may have a dilutive effect on the ownership interests of
the other shareholders (and Persons having the right to become shareholders) of
the Company. The Company's executive officers and directors have studied and
fully understand the nature of the Securities being sold hereby and recognize
that they have such a potential dilutive effect (including but not necessarily
limited to the effect of the provisions Section 4(h) hereof and of the
application of the Post-Maturity Date Conversion Price, if relevant). The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Conversion Shares
upon conversion of the Debentures, the Warrant Shares upon exercise of the
Warrants or the Payment Shares as provided in the Registration Rights Agreement
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company, and the Company will honor such obligations, including honoring every
Notice of Conversion (as contemplated by the Debentures), every Notice of
Exercise (as contemplated by the Warrants), and every demand for Payment Shares
(as contemplated by the Registration Rights Agreement), unless the Company is
subject to an injunction (which injunction was not sought by the Company)
prohibiting the Company from doing so.
10
p. Fees to Brokers, Placement Agents and Others. Except for payment
of the the Placement Agent's Compensation (as defined below) to the Placement
Agent, payment of which is the sole responsibility of the Company, the Company
has taken no action which would give rise to any claim by any Person for
brokerage commission, placement agent or finder's fees or similar payments by
Buyer relating to this Agreement or the transactions contemplated hereby. Buyer
shall have no obligation with respect to such fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
paragraph that may be due in connection with the transactions contemplated
hereby. The Company shall indemnify and hold harmless each of Buyer, its
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees, as and when incurred. The term "Placement
Agent's Compensation" means, in connection with the consummation of the
transactions contemplated by this Agreement, the consideration contemplated by
the Joint Escrow Instructions.
q. Disclosure. All information relating to or concerning the Company
set forth in the Transaction Agreements or in the Company's public filings with
the SEC is true and correct in all material respects and all such information
has not omitted to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its business, properties, prospects, operations or financial
conditions, which under applicable law, rule or regulation, requires public
disclosure or announcement by the Company.
r. Confirmation. The Company confirms that all statements of the
Company contained herein shall survive acceptance of this Agreement by the Buyer
for a period of three (3) years from the last Additional Closing Date. The
Company agrees that, if, to the knowledge of the Company, any events occur or
circumstances exist prior to a Closing Date which would make any of the
Company's representations, warranties, agreements or other information set forth
herein materially untrue or materially inaccurate as of such date, the Company
shall immediately notify the Buyer (directly or through its counsel, if any) and
the Escrow Agent in writing prior to such date of such fact, specifying which
representation, warranty or covenant is affected and the reasons therefor.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Securities may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the Person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that, until
such time as the relevant Shares have been registered under the 1933 Act, as
contemplated by the Registration Rights Agreement, and may be sold in accordance
with an effective Registration Statement or otherwise in accordance with another
effective registration statement, or until such Shares can otherwise be sold
without restriction, whichever is earlier, the certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Filings. The Company undertakes and agrees to make all filings it
deems necessary (based on the advice of Company counsel) in connection with the
sale of the Securities to the Buyer under any United States laws and regulations
applicable to the Company, or by any domestic securities exchange or trading
market, and to provide a copy thereof to the Buyer promptly after such filing.
Reference is made to the Section titled "Publicity, Filings, Releases, Etc."
below.
d. Reporting Status. So long as the Buyer beneficially owns any of
the Purchased Securities and for at least twenty (20) Trading Days thereafter,
the Company shall timely file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable
action under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it at least through the date which is sixty (60) days after the
later of the date on which (x) all of the Debentures have been converted or have
been paid in full or (y) all of the Warrants have been exercised or have
expired.
e. Use of Proceeds.
(i) The Company will use the net proceeds received hereunder
(excluding amounts paid as contemplated by the Joint Escrow Instructions) solely
for general corporate purposes for its operations in the United States.
(ii) The Company represents, warrants and covenants that none of the
net proceeds referred to in Section 4(e)(i) will be used for operations or
expenses of the Company outside of the United States.
(iii) The Company covenants that, within five (5) Trading Days from
the Company's receipt of a written request therefor from the Holder, the Company
will provide to the Holder written assurance, certified by the chief financial
officer of the Company, that the Company is in compliance with the
representation, warranty and covenant of the Section 4(e)(ii) hereof. This
provision shall no longer be applicable once the Company issues such a certified
written assurance to the Holder which includes a certified representation that
all of such net proceeds have been expended in a manner which is in compliance
with the representation, warranty and covenant of said Section 4(e)(ii).
f. Warrants.
(i) The Company agrees to issue to the Buyer on the Closing Date and
each Additional Closing Date:
(A) a transferable warrant for the purchase of a number of
shares of Common Stock equal to twenty-five percent (25%) of the
Issue Date Conversion Shares at an exercise price (the "Exercise
Price") equal to the average Closing Price for the forty-five (45)
Trading Days ending on the Trading Day immediately before the
exercise date, multiplied by (i) a percentage equal to (x) one
hundred percent (100%), less (y) the Pre-Maturity Effective
Percentage; provided, however, that the Exercise Price shall not be
less than Thirty Cents ($0.30) per share; provided further, that
such Exercise Price will be subject to adjustment as provided in the
Warrant and herein (the "Coverage Warrants"); and
12
(B) a transferable warrant for the purchase of a number of
shares of Common Stock equal to the aggregate number of shares of
Common Stock into which the prepaid portion of a Convertible
Debenture is convertible, at an Exercise Price equal to $0.0006 per
share, provided that such Exercise Price will be subject to
adjustment as provided in the Warrant and herein (the "Catch-up
Warrants," and together with the Coverage Warrants, collectively,
the "Warrants").
(ii) Each Warrant shall be exercisable commencing on the
Commencement Date specified in the Warrants and shall expire at the close of
business on the date which is the last day of the calendar month in which the
fifth annual anniversary of the Effective Date occurs. Each Warrant shall have
cashless exercise rights as provided in the Warrant. Except as specified above,
each Warrant shall generally be in the form annexed hereto as Annex V.
(iii) The Warrant Shares shall be subject to the provisions of the
Registration Rights Agreement.
g. Actions or Events Requiring Approval. So long as any amounts
(including, without limitation, principal or interest) remain due and payable to
Buyer under the Convertible Debentures, neither the Company nor any of its
subsidiaries may do any of the following without the approval of the Buyer:
(i) merge or consolidate with, enter into a joint venture with, or
acquire all or substantially all of the capital stock or assets of, any Person,
unless the cash consideration payable by the Company in connection with any such
transaction or event does not exceed $100,000, or if the value of any stock
consideration paid or issued by the Company in connection with any such
transaction or event is not less than $0.50 per share;
(ii) authorize or incur any indebtedness in any transaction or
series of related transactions, or provide any guarantee, in excess of $100,000,
in the aggregate, or refinance existing indebtedness;
(iii) create, incur, assume or permit to exist any mortgage or deed
of trust, pledge, lien, charge, claim, security interest or encumbrance of any
kind or nature (collectively, "Encumbrances") whatsoever on or with respect to
any of its properties or assets (whether now owned or hereafter acquired);
(iv) declare or pay any dividends (other than dividends payable to
the Company by a wholly-owned subsidiary), or make any other payments on its
capital stock, redeem or repurchase any of its capital stock;
(v) grant or issue any capital stock, warrant, right or option
pertaining to its capital stock or other security convertible into its capital
stock (other than grants of stock or stock options to employees pursuant to an
existing employee stock option plan);
(vi) make any capital expenditure in excess of $100,000 in the
aggregate;
(vii) sell, lease, assign, transfer or otherwise dispose of any
property, assets and rights (including the capital stock of any of its
subsidiaries) other than in the ordinary course of business; or
(viii) liquidate, dissolve or wind up.
13
h. Actions or Events Leading to Adjustments.
(i) For purposes of this Agreement, the following terms shall have
meanings indicated:
(A) "New Transaction Period" means the period commencing on
the Closing Date and continuing through and including the Final
Lock-up Date.
(B) "Final Lock-up Date" means the date on which the
Debentures have been fully converted and the date on which any
Unconverted Debenture has been paid in full in accordance with its
terms, whichever is later.
(C) "New Transaction Price" means the Basic New Transaction
Price (as defined below) except that if the New Transaction Exercise
Price is lower than the Basic New Transaction Price, it means the
New Transaction Exercise Price.
(D) "Basic New Transaction Price" means, as may be applicable,
on a per share basis, the lower of (1) the lowest fixed purchase
price of any shares of the New Common Stock contemplated in the New
Transaction, or (2) the lowest conversion price or put or call price
which would be applicable under the terms of the New Transaction; in
each such case, whether such purchase or conversion price or put or
call price is stated or otherwise specified or is determined on the
closing date of the New Transaction by the application of a formula
set in the documents reflecting the New Transaction or could result
from adjustments or revisions contemplated in the relevant
agreements for the New Transaction and whenever such adjustment or
revision would be applicable (and if no minimum purchase price,
conversion price or put or call price, as the case may be, is set,
it shall be assumed that such minimum purchase price or conversion
price is $.0006); and provided, further, that, if the securities
issued in the New Transaction are issued at a Face Value Discount
(as defined below), the New Transaction Price shall be adjusted to
reflect such discount.
(E) "Exercise Threshold Price" means the then applicable
Exercise Price.
(F) "New Transaction Exercise Price" means the lowest exercise
price per share applicable to the warrants, option or similar
instrument (howsoever denominated; collectively, "New Transaction
Warrants") included in such New Transaction, whether such exercise
price is stated or could result from adjustments or revisions
contemplated in the relevant agreements for the New Transaction and
whenever such exercise price would be applicable (and, if no minimum
exercise price is set, it shall be assumed that such minimum
exercise price is $.0006).
(G) The term "New Transaction Effective Percentage" means the
percentage equal to the excess, if any, of (i) one hundred percent
(100%) over (ii) the percentage equal to (x) the New Transaction
Price, divided by (y) the Closing Price for the ten (10) Trading
Days ending on the Trading Day immediately before the closing date
of the New Transaction.
(H) "Alternative Warrant Percentage" means (x) the number of
shares which are eligible to be purchased under the New Transaction
Warrants, divided by (y) the aggregate of the shares of New Common
Stock issued or issuable in such transaction (excluding the shares
issuable on exercise of the New Transaction Warrants).
(I) "Outstanding Warrant Shares" means, for the Warrants or
for any previously issued Additional Warrants (as defined below),
the then outstanding number of Warrant Shares which would then be
issuable upon the exercise in full of such Warrants (without regard
to any limitations which may then restrict the Holder's full
exercise of such Warrant at any time) or such Additional Warrants,
if any, as in effect immediately prior to the relevant New
Transaction.
14
(J) "Original Warrant Shares" means, for the Warrants or for
any previously issued Additional Warrants, the original number of
Warrant Shares issuable on exercise of such Warrants on the Closing
Date or as Additional Warrants, as the case may be (in each case
without regard to any limitations which may then restrict the
Holder's full exercise of such Warrant at any time).
(K) "Face Value Discount" means consideration less than, as
the case may be, (x) the number of shares being issued multiplied by
the stated purchase price, (y) the stated principal amount of a
debenture, note or similar instrument or (z) the stated value of the
shares of convertible stock.
(ii) The Company covenants and agrees that, if, during the New
Transaction Period, without the prior written consent of a Majority in Interest
of the Holders in each instance (which consent is in the sole discretion of the
Holders and may be withheld for any reason or for no reason whatsoever), the
Company enters into a New Transaction, then (in each instance, unless waived by
the Holder):
(A) if the New Transaction Price is lower than the then
effective Conversion Price, the Conversion Price for all Unconverted
Debentures shall be adjusted to be equal to such New Transaction
Price; and
(B) if the New Transaction Effective Percentage is higher than
the then applicable Effective Percentage, the Effective Percentage
shall be adjusted for all Unconverted Debentures to such New
Transaction Effective Percentage; and
(C) if the New Transaction Exercise Price of any of the New
Transaction Warrants representing the first twenty-five percent
(25%) of the Alternative Warrant Percentage(1) (the "First New
Transaction Warrants") is lower than the Exercise Threshold Price of
the Warrants, then the Exercise Price of the then outstanding
Warrants shall be adjusted to be equal to the New Transaction
Exercise Price of such First New Transaction Warrants; and
(D) if the provisions applicable to the convertible preferred
stock, convertible debenture or similar instrument (howsoever
denominated), if any, of the New Transaction are more beneficial to
the holder of such instrument than the corresponding terms
applicable to the Debentures or in or to the Warrants, as the case
may be, or if the terms which are beneficial to the Company in the
relevant Transaction Agreements are not included in the
corresponding instrument in the New Transaction, then, unless waived
by the Holder, the terms of the Transaction Agreements applying to
the then Unconverted Debentures or the Warrants or to the other
Transaction Agreements, as the case may be, shall be modified to
reflect similar terms (based, if relevant, on the Closing Date);
provided, however, that nothing in this provision shall be read to
mean that the Purchased Securities shall be changed to any other
form of security;
(E) if the Alternative Warrant Percentage is greater than
twenty-five percent (25%), the Company shall issue to the Holder
additional warrants ("Additional Warrants") for the purchase of the
number of shares equal to the excess, if any, of
(1) (x) the Alternative Warrant Percentage, multiplied by (y)
(I) the Purchase Price, divided by (II) the Conversion Price in
effect on the Closing Date or immediately after the closing date of
the New Transaction (after taking into account all relevant
adjustments contemplated by the Debentures or hereby), whichever is
lower, multiplied by (y) a fraction, of which the numerator is the
Outstanding Warrant Shares for all Warrants (including previously
issued Additional Warrants) and the denominator is Original Warrant
Shares for all Warrants (including previously issued Additional
Warrants); over
----------
(1) If New Transaction Warrants have more than one exercise price, they shall be
ranked in priority order from lowest exercise price to highest exercise price.
15
(2) the aggregate Outstanding Warrant Shares for all Warrants
(including previously issued Additional Warrants);
and the terms of such Additional Warrants (including, but not limited, to
term of exercisability, exercise price, manner and limitations, if any, on
exercise, registration rights) shall be the same (on a pro rata basis, if
relevant) as the applicable New Transaction Warrants issued in such New
Transaction.
(iii) The Company covenants and agrees that, any of the foregoing
provisions of this Section 4(h) or any other provision of this Agreement or any
of the other Transaction Agreements to the contrary notwithstanding, without the
prior written consent of a Majority in Interest in each instance (which consent
is in the sole discretion of the Holders and may be withheld for any reason or
for no reason whatsoever),
(A) during the New Transaction Period, the Company will not
enter into any New Transaction where such transaction provides for a
variable conversion price or a variable exercise price;
(B) during the period commencing on the Closing Date and
continuing through the Effective Date, the Company will not enter
into any New Transaction whatsoever, and
(C) during the period commencing on the Effective Date and
continuing through the date which is the sixth monthly anniversary
of the Effective Date, the Company will not enter into any New
Transaction where such New Transaction provides for any registration
rights (including, but not limited to demand or piggy-back
registration rights) to any one or more of the New Transaction
Investors in such New Transaction.
The Company acknowledges that each of the foregoing provisions is independent of
the others and that a breach of any of the foregoing provisions might result in
adjustments referred to in other provisions of this Section 4(h) and, in
addition (and not in lieu of such adjustments, if any) shall constitute an event
of default under the Debenture and the other Transaction Agreements. The Company
is aware that if such event of default occurs, a Holder of a Debenture will have
certain redemption rights contemplated by the Debenture.
(iv) Nothing in the foregoing provisions reflects either an
obligation on the part of any Buyer to participate in any New Transaction or a
limitation on any Buyer from participating in any New Transaction.
(v) Any of the foregoing provisions of this Section 4(h) or any
other provision of this Agreement or any of the other Transaction Agreements to
the contrary notwithstanding, the Company shall not engage in any offers, sales
or other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Agreements.
(vi) The Company agrees that, prior to the Effective Date, the
Company will not file any registration statement for the sale of shares by the
Company or any other shareholder other than the Registration Statement
contemplated by the Registration Rights Agreement.
i. Company Principal's Agreements. The Company hereby agrees that,
no later than the Initial Closing Date, the Company will cause each of its
principal officers and all of its directors and certain other persons identified
in the heading of Annex VIII attached hereto (each, a "Company Principal"), and
certain Persons who are related to or controlled by such Company Principal, to
execute and deliver an agreement (each, a "Company Principal's Agreement")
regarding limitations on the sale or other disposition of the shares of the
Company's Common Stock (or instruments convertible into or exercisable for such
shares) held by such Company Principal or other Principal (as defined in the
Company Principal's Agreement), except that, notwithstanding its terms, the
Company Principal's Agreement will be deemed not apply to the sale of shares of
Common Stock bought by a Principal in open market transactions. As provided in
the Company Principal's Agreement, the spouse of a Company Principal, whether or
not such spouse, directly or indirectly holds or is the beneficial owner of any
shares of Common Stock of the Company, is a Principal for purposes of the
Company Principal's Agreement. Subject to the foregoing, each Company
Principal's Agreement shall be substantially in the form set forth in Annex VIII
attached hereto.
16
j. Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, a number of shares of
Common Stock (the "Reserved Amount") at least equal to the Reservation
Percentage (as defined below) of the sum of (x) the number of shares of Common
Stock issuable as may be required, at any time, to satisfy the conversion rights
of the Holders of principal on all Unconverted Debentures plus interest thereon
for one year beyond the date such computation is made, plus (y) the number of
shares issuable upon exercise of all outstanding Warrants held by all Holders
(in each case, whether any of such Unconverted Debentures or outstanding
Warrants were originally issued to the Holder, the Buyer or to any other party
and without regard to any restrictions which might limit any Holder's right to
convert any of the Debentures or to exercise any of the Warrants held by any
Holder). The term "Reservation Percentage" means (i) until the Maturity Date,
one hundred twenty-five percent (125%) and (ii) thereafter two hundred percent
(200%). The Reserved Amount shall be determined on the first Trading Day after
the end of each calendar quarter and the number of shares to be reserved shall
be based on (q) all Unconverted Debentures and the Conversion Price in effect or
applicable as of such date and (r) unexercised Warrants as of such date. The
Reserved Amount determined on such date shall remain the Reserved Amount until
the next quarterly determination.
k. Publicity, Filings, Releases, Etc.
(i) Each of the parties agrees that, except as provided below, the
other party may report on or refer to the consummation of the transactions
contemplated by the Transaction Agreements; provided, however, the Company will
provide to the Buyer drafts of the applicable text of any press release or any
filing intended to be made with the SEC which refers to or describes the
Transaction Agreements or the transactions contemplated thereby as soon as
practicable (but at least three (3) business days before such release or filing
will be made) and will not include in such filing any statement or statements or
other material to which the Buyer or Buyer's counsel reasonably objects.
(ii) Each of the parties hereby specifically consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
(but any descriptive text accompanying or part of such filing shall be subject
to the other provisions of this Section 4(k)).
(iii) Notwithstanding, but subject to, the foregoing provisions of
this Section 4(k), the Company will, after the Initial Closing Date, promptly
issue a press release and file a Current Report on Form 8-K or, if appropriate,
a quarterly or annual report on the appropriate form, referring to the
transactions contemplated by the Transaction Agreements.
l. Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under the Transaction Agreements are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any Other Buyer under any
one or more of the Transaction Agreements. The decision of each Buyer or Other
Buyer to purchase Purchased Securities pursuant to the Transaction Agreements
has been made by such Buyer independently of any Other Buyer. Nothing contained
herein or in any Transaction Agreement, and no action taken by any Buyer
pursuant thereto, shall be deemed to constitute any two or more Buyers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Agreements. Each Buyer acknowledges that no Other Buyer has acted as
agent for such Buyer in connection with making its investment hereunder and that
no Buyer will be acting as agent of such Other Buyer in connection with
monitoring its investment in the Purchased Securities or enforcing its rights
under the Transaction Agreements. Each Buyer shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Agreements, and it shall
not be necessary for any Other Buyer to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Buyers
has been provided with the same Transaction Agreements for the purpose of
closing a transaction with multiple Buyers and not because it was required or
requested to do so by any Buyer.
17
m. Equal Treatment of Buyers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Agreements unless the same consideration is
also offered to all of the parties to the Transaction Agreements.
n. Independent Investment Decision. No Buyer has agreed to act with
any Other Buyer for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Buyer is acting independently with respect to its
investment in the Securities. The decision of each Buyer to purchase Purchased
Securities pursuant to this Agreement has been made by such Buyer independently
of any other purchase and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or its subsidiaries which may have made
or given by any Other Buyer or by any agent or employee of any Other Buyer, and
no Buyer or any of its agents or employees shall have any liability to any Other
Buyer (or any other person) relating to or arising from any such information,
materials, statements or opinions.
o. NASD Rule 2710. The Company is aware that the Corporate Financing
Rule 2710 ("NASD Rule 2710") of the National Association of Securities Dealers
("NASD") is or may become applicable to the transactions contemplated by the
Transaction Agreements or to the sale by a Holder of any of the Securities. If
NASD Rule 2710 is so applicable, the Company shall, to the extent required by
such rule, cooperate with any broker or selling shareholder in respect of any
consents, authorizations or approvals that may be necessary for the NASD to
timely and expeditiously permit the shareholder to sell the securities.
p. SBA Compliance. The Company agrees that, on the Initial Closing
Date, the Company will deliver to the Buyer (i) SBA From 480 (Size Status
Declaration) and (ii) SBA Form 652 (Assurance of Compliance for
Nondiscrimination), together with the certification of an executive officer of
the Company that the information contained in each of such forms is true and
correct in all respects. Such forms and certification are referred to as the
"SBA Compliance Documents."
5. TRANSFER AGENT INSTRUCTIONS.
a. (i) The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give the Transfer Agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Debentures or
exercise of the Warrants or in connection with the issuance of Payment Shares,
as may be applicable from time to time, in such amounts as specified from time
to time by the Company to the Transfer Agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Holder in connection therewith. Except
as so provided, the Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement and
the other Transaction Agreements. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities.
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(ii) If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities.
(iii) The Company agrees that, upon the Company's receipt of (i) a
written request from a Holder while the Registration Statement is effective or
(ii) an opinion of counsel that the Conversion Shares, Warrant Shares or Payment
Shares then held by a Holder may be transferred without registration under Rule
144(k) promulgated under the 1933 Act, the Company shall promptly instruct the
Transfer Agent to issue one or more replacement certificates for any or all of
the Conversion Shares, Warrant Shares or Payment Shares then held by such Holder
or subsequently issued to the Holder. Such replacement or newly issued
certificates shall be issued, without legend and without any stop transfer
instructions, in such name and in such denominations as specified by the Holder.
b. (i) The Company understands that a delay in the delivery of (i)
Conversion Certificates, whether on conversion of the Debenture and/or in
payment of accrued interest, beyond the relevant Delivery Date (as defined in
the Debenture), (ii) the certificates for the shares of Common Stock issuable
upon the exercise of the Warrants (the "Warrant Certificates"), beyond the
relevant Warrant Share Delivery Date (as defined in the Warrants), or (iii) the
certificates representing Payment Shares ("Payment Shares Certificates"), beyond
the relevant delivery date of the Payment Shares Certificates under the
Registration Rights Agreement, could each result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of the Conversion Certificates, the
Warrant Certificates or the Payment Shares Certificates, as the case may be, in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of Trading Days after the Delivery Date):(2)
----------
(2) Example: Notice of Conversion is delivered on Monday, May 1, 2006. The
Delivery Date would be Thursday, May 4 (the third Trading Day after such
delivery). If the certificate is delivered by by that date, no payment under
this provision is due. If the certificates are delivered on May 5, that is 1
"Trading Day Late" in the table below; if delivered on May 8, that is 2 "Trading
Days Late" in the table below; and if delivered on May 12, that is 6 "Trading
Days Late" in the table.
19
Late Payment For Each $10,000 of
Principal or Interest Being Converted
or For Each $10,000 in Common Stock
Being Issued Upon Exercise of a
Warrant or Issuance of Payment Shares
(Based on the Value of the Common
Stock on the Exercise Date or
No. Trading Days Late Issuance Date, as applicable)
--------------------- -----------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Late beyond
10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver the
Conversion Certificates, the Warrant Certificates or the Payment Shares
Certificates, as the case may be, to the Holder within a reasonable time.
Furthermore, in addition to any other remedies which may be available to a
Holder, in the event that the Company fails for any reason to effect delivery of
such Conversion Certificates, Warrant Certificates or Payment Shares
Certificates within ten (10) Trading Days after the relevant Delivery Date, the
Converting Holder, the Holder exercising a Warrant or the Holder receiving
Payment Shares (as applicable) will be entitled to revoke the relevant Notice of
Conversion, Notice of Exercise or written notice for Payment Shares (as
applicable), by delivering a notice to such effect to the Company prior to the
receipt by such Holder of the relevant Conversion Certificates, Warrant
Certificates or Payment Shares Certificates, whereupon the Company and such
Holder shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion, Notice of Exercise or written notice for
Payment Shares (as applicable); provided, however, that any payments
contemplated by this Section 5(b) of this Agreement which have accrued through
the date of such revocation notice shall remain due and owing to such Holder
notwithstanding such revocation.
(ii) If, after the Holder has submitted a Notice of Conversion,
Notice of Exercise or written notice for Payment Shares (as applicable), the
Company fails for any reason to deliver the Conversion Certificates, the Warrant
Certificates or the Payment Shares Certificates (as applicable) by the relevant
Delivery Date, and at any time thereafter prior to the actual delivery of the
Conversion Certificates, the Warrant Certificates or the Payment Shares
Certificates (as applicable), such Holder purchases, in an arm's-length open
market transaction or otherwise, shares of Common Stock (the "Covering Shares")
in order to make delivery in satisfaction of a sale of Common Stock by such
Holder (the "Sold Shares"), which delivery such Holder anticipated to make using
the shares to be issued upon such conversion, exercise or issuance (a "Buy-In"),
the Holder shall have the right to require the Company to pay to such Holder, in
addition to and not in lieu of the amounts contemplated in other provisions of
the Transaction Agreements, including, but not limited to, the provisions of the
immediately preceding Section 5(b)(i)), the Buy-In Adjustment Amount (as defined
below). The "Buy-In Adjustment Amount" is the amount equal to the number of Sold
Shares multiplied by the excess, if any, of (x) the Holder's total purchase
price per share (including brokerage commissions, if any) for the Covering
Shares over (y) the net proceeds per share (after brokerage commissions, if any)
received by the Holder from the sale of the Sold Shares. The Company shall pay
the Buy-In Adjustment Amount to the Holder in immediately available funds
immediately upon demand by the Holder. By way of illustration and not in
limitation of the foregoing, if the Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay
to the Holder will be $1,000.
20
c. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion of the Debenture or exercise of a Warrant
or at the request of the Holder with respect to any Shares previously issued,
provided the Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of the Holder
and the Holder's compliance with the provisions contained in this paragraph, so
long as the certificates therefor do not bear a legend and the Holder thereof is
not obligated to return such certificate for the placement of a legend thereon,
the Company shall use its best efforts to cause the Transfer Agent to
electronically transmit to the Holder the Common Stock issuable upon conversion
of the Debenture or exercise of the Warrant or in replacement of any Shares
previously issued by crediting the account of Holder's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission system.
d. The Company shall assume any fees or charges of the Transfer
Agent or Company counsel regarding (i) the removal of a legend or stop transfer
instructions with respect to Registrable Securities, and (ii) the issuance of
certificates or DTC registration to or in the name of the Holder or the Holder's
designee or to a transferee as contemplated by an effective Registration
Statement. Notwithstanding the foregoing, it shall be the Holder's
responsibility to obtain all needed formal requirements (specifically: medallion
guarantee and prospectus delivery compliance) in connection with any electronic
issuance of shares of Common Stock.
e. The Company will authorize the Transfer Agent to give information
relating to the Company directly to the Holder or the Holder's representatives
upon the request of the Buyer or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Holder in connection with a Notice of Conversion or
a Notice of Exercise, or (ii) the aggregate number of outstanding shares of
Common Stock of all shareholders (as a group and not individually) as of a
current or other specified date. At the request of the Holder, the Company will
provide the Holder with a copy of the authorization so given to the Transfer
Agent.
6. CLOSING DATE.
a. The Initial Closing Date shall be August 1, 2005. One or more
Additional Closing Date shall occur on the date on which each of the conditions
contemplated by Sections 7 and 8 hereof shall have either been satisfied or been
waived by the party in whose favor such conditions run or as soon thereafter as
is reasonably practicable; provided, however, that any Additional Closing Date
shall occur no later than thirty (30) calendar days from the Initial Closing
Date.
b. The closing of the purchase and issuance of the Purchased
Securities shall occur on each Closing Date at the offices of the Escrow Agent.
c. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Funds to the Company and
to others and to release the other Escrow Property on each Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Purchased Securities to the Buyer pursuant to this Agreement on each Closing
Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer on or
before such Closing Date;
21
b. Delivery by the Buyer to the Escrow Agent by such Closing Date of
good funds as payment in full of an amount equal to the Purchase Price in
accordance with this Agreement;
c. The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Purchased Securities on each Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before such Closing Date;
b. The delivery by the Company to the Escrow Agent of originals of
each of the Certificates in accordance with this Agreement;
c. The delivery by the Company to the Escrow Agent of the executed
Company Principal's Agreements from each Company Principal and the related
Principals (as defined in each Company Principal's Agreement) of such Company
Principal;
d. The delivery by the Company to the Escrow Agent of the SBA
Compliance Documents;
e. On such Closing Date, each of the Transaction Agreements executed
by the Company on or before such date shall be in full force and effect and the
Company shall not be in default thereunder;
f The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
g. The Buyer shall have received an opinion of counsel for the
Company, dated such Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, substantially to the effect set forth in Annex III
attached hereto;
h. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and
i. From and after the date hereof to and including such Closing
Date, each of the following conditions will remain in effect: (i) the trading of
the Common Stock shall not have been suspended by the SEC or on the Principal
Trading Market; (ii) trading in securities generally on the Principal Trading
Market shall not have been suspended or limited; (iii), no minimum prices shall
been established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any material adverse change in any financial market.
9. INDEMNIFICATION.
a. (i) The Company agrees to indemnify and hold harmless the Buyer
and its officers, directors, employees, and agents, and each Buyer Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, "Damages"), joint or several, and any action in respect
thereof to which the Buyer, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Buyer Control Person becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, except to the extent such Damages result primarily from a material
breach of a material representation by Buyer or Buyer's material failure to
perform any covenant or agreement contained in this Agreement (in each case, as
determined by a non-appealable judgment to such effect).
22
(ii) The Company hereby agrees that, if the Buyer, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws (in each case, as determined by a non-appealable judgment to such effect),
(x) becomes involved in any capacity in any action, proceeding or investigation
brought by any shareholder of the Company, in connection with or as a result of
the consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements, or if the Buyer is impleaded in any such action,
proceeding or investigation by any Person, or (y) becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC, any
self-regulatory organization or other body having jurisdiction, against or
involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by this Agreement or the other Transaction
Agreements, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless the Buyer from and against and in respect of all losses, claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. The
indemnification and reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Buyer who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Buyer Control Persons (if any), as
the case may be, of the Buyer and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Buyer, any such Affiliate and any such
Person. The Company also agrees that neither the Buyer nor any such Affiliate,
partner, director, agent, employee or Buyer Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, except to the extent such
liability is based on a material misrepresentation made by the Buyer in Section
2 hereof or Buyer's material failure to perform any material covenant or
agreement of Buyer contained in the Transaction Agreements (in each case, as
determined by a non-appealable judgment to such effect).
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any Person
claiming indemnification under any provision of this Section (an "Indemnified
Party") might seek indemnity under paragraph (a) of this Section is asserted
against or sought to be collected from such Indemnified Party by a Person other
than a party hereto or an Affiliate thereof (a "Third Party Claim"), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of this Section against any Person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.
23
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
paragraph (b) of this Section, then the Indemnifying Party shall have the
right to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying Party
(but only with the consent of the Indemnified Party in the case of any
settlement that provides for any relief other than the payment of monetary
damages or that provides for the payment of monetary damages as to which
the Indemnified Party shall not be indemnified in full pursuant to
paragraph (a) of this Section). The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at
the sole cost and expense of the Indemnified Party, at any time prior to
the Indemnifying Party's delivery of the notice referred to in the first
sentence of this subparagraph (x), file any motion, answer or other
pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate protect its interests; and
provided further, that if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in
contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this subparagraph (x), and except as
provided in the preceding sentence, the Indemnified Party shall bear its
own costs and expenses with respect to such participation. Notwithstanding
the foregoing, the Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any time if it irrevocably
waives its right to indemnity under paragraph (a) of this Section with
respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Third
Party Claim pursuant to paragraph (b) of this Section, or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, each in a reasonable manner,
or if the Indemnifying Party fails to give any notice whatsoever within
the Dispute Period, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party, the Third
Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in good
faith or will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of
such defense and proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the Indemnified Party,
the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. Notwithstanding the foregoing provisions
of this subparagraph (y), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such
dispute is resolved in favor of the Indemnifying Party in the manner
provided in subparagraph(z) below, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this subparagraph (y) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate
in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this subparagraph (y), and the Indemnifying
Party shall bear its own costs and expenses with respect to such
participation.
24
(z) If the Indemnifying Party notifies the Indemnified Party that it does
not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under paragraph
(a) of this Section or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability or
the amount of its liability to the Indemnified Party with respect to such
Third Party Claim, the amount of Damages specified in the Claim Notice
shall be conclusively deemed a liability of the Indemnifying Party under
paragraph (a) of this Section and the Indemnifying Party shall pay the
amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of
such dispute; provided, however, that it the dispute is not resolved
within thirty (30) days after the Claim Notice, the Indemnifying Party
shall be entitled to institute such legal action as it deems appropriate.
(ii) In the event any Indemnified Party should have a claim under
paragraph (a) of this Section against the Indemnifying Party that does not
involve a Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under paragraph (a) of this Section
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim (an "Indemnity Notice") with reasonable promptness to the
Indemnifying Party. The failure by any Indemnified Party to give the Indemnity
Notice shall not impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim or the amount of the claim
described in such Indemnity Notice, the amount of Damages specified in the
Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
c. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.
10. JURY TRIAL WAIVER. The Company and the Buyer hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. SPECIFIC PERFORMANCE. The Company and the Buyer acknowledge and
agree that irreparable damage would occur in the event that any provision of
this Agreement or any of the other Transaction Agreements were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that the parties (including any Holder) shall be entitled to an
injunction or injunctions, without (except as specified below) the necessity to
post a bond, to prevent or cure breaches of the provisions of this Agreement or
such other Transaction Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity; provided, however that the
Company, upon receipt of a Notice of Conversion or a Notice of Exercise, may not
fail or refuse to deliver the stock certificates and the related legal opinions,
if any, based on any claim that the Holder has violated any provision hereof or
for any other reason, unless the Company has first posted a bond for one hundred
fifty percent (150%) of the principal amount and then obtained a court order
specifically directing it not to deliver said stock certificates to the Holder.
This provision is deemed incorporated by reference into each of the Transaction
Agreements as if set forth therein in full.
25
12. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Illinois for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the County of ▇▇▇▇ or
the state courts of the State of Illinois sitting in the County of ▇▇▇▇ in
connection with any dispute arising under this Agreement or any of the other
Transaction Agreements and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Buyer for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
g. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
13. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified mail,
or
26
(c) the third business day after mailing by domestic or
international express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: At the address set forth at the head of this Agreement.
Attn: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇-▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Wildman, Harrold, ▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
ESCROW AGENT: Wildman, Harrold, ▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and
the Buyer's representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Certificates and the
payment of the Purchase Price, for a period of three (3) years after last
Additional Closing Date and shall inure to the benefit of the Buyer and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
27
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, with respect to the Purchase Price specified
below, each the undersigned represents that the foregoing statements made by it
above are true and correct and that it has caused this Agreement to be duly
executed on its behalf (if an entity, by one of its officers thereunto duly
authorized) as of the date first above written.
PURCHASE PRICE: $1,750,000
SECURED CONVERTIBLE DEBENTURE (PRINCIPAL AMOUNT) $ 437,500
UNSECURED CONVERTIBLE DEBENTURE (PRINCIPAL AMOUNT) $1,312,500
BUYER:
------
CHICAGO VENTURE PARTNERS, L.P.
an Illinois limited partnership
By: Chicago Venture Management, L.L.C.
a Delaware limited liability company,
sole General Partner
By: CVM, Inc., an Illinois corporation,
Manager
By:
--------------------------------
Name:
Title:
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ________________________
COMPANY:
--------
SUPERCLICK, INC.
By: ________________________
Title: ________________________
ANNEX I FORM OF DEBENTURES
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V FORM OF WARRANTS
ANNEX VI COMPANY DISCLOSURE
ANNEX VII COMPANY'S SEC DOCUMENTS AVAILABLE ON ▇▇▇▇▇
ANNEX VIII COMPANY PRINCIPAL'S AGREEMENT
ANNEX IX SECURITY INTEREST AGREEMENT