INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (the "Agreement") is dated as of February 17,
2006, by and between CORNELL CAPITAL PARTNERS, LP, a Delaware limited
partnership (referred to as "Cornell" and/or a "Buyer"), and NEOMEDIA
TECHNOLOGIES INC., a corporation organized and existing under the laws of the
State of Delaware (the "Company").
RECITALS:
WHEREAS, the Company and the Buyers are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the Buyer has purchased from the Company an eight percent (8%)
promissory note dated March 30, 2005 in the original principal amount of Twenty
Million Dollars ($20,000,000) (referred to as the "Prior Securities").
WHEREAS, as of the date hereof, the Buyer is the beneficial owner of the
Prior Securities. The Buyer desires to surrender the Prior Securities plus
accrued and unpaid interest on the Prior Securities through the date hereof in
an amount equal to Three Million Two Hundred Eight Thousand Seven Hundred Two
Dollars ($3,208,702) (consisting of $2,790,000 in principal plus $418,702 as and
for interest on the Prior Securities) for conversion into Series C Preferred
Shares and to purchase additional Series C Preferred Shares as outlined below;
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer, as
provided herein, and the Buyer shall purchase up to Twenty Seven Million Dollars
($27,000,000) of Series C Preferred Shares (the "Series C Preferred Shares"),
which shall be convertible into shares of the Company's common stock, par value
$0.01 (the "Common Stock") (as converted, the "Conversion Shares") of which
Three Million Two Hundred Eight Thousand Seven Hundred Two Dollars ($3,208,702)
shall be purchased for consideration solely consisting of surrendering the Prior
Securities, Eighteen Million Seven Hundred Ninety One Thousand Two Hundred
Ninety Eight Dollars ($18,791,298) shall be purchased by an additional funding
by the Buyer on the date hereof (the "First Closing") and Five Million Dollars
($5,000,000) shall be purchased by an additional funding by the Buyer on the
date the registration statement (the "Registration Statement") filed pursuant to
the Investor Registration Rights Agreement dated the date hereof, is declared
effective by the United States Securities and Exchange Commission (the "SEC")
(the "Second Closing") (individually referred to as a "Closing" collectively
referred to as the "Closings"), for a total purchase price of Twenty Million
Dollars ($27,000,000) (the "Purchase Price"); and
WHEREAS, the Company has authorized the following series of its Preferred
Stock, par value $0.001 per share (the "Series C Preferred Shares"), which shall
be convertible into shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock") (as converted, the "Conversion Shares"), in
accordance with the terms of the Company Certificate of Designations,
Preferences, and Rights of the Series C Preferred Shares attached hereto as
Exhibit A (the "Certificate of Designations"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit B (the "Investor
Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions"); and
NOW, THEREFORE, in consideration of the mutual premises herein set forth
and certain other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. ISSUANCE OF SHARES AND RELATED TRANSACTIONS.
1.1 Purchase Price. The Purchase Price for the Series C Preferred Shares
shall be paid to the Company in immediately available funds on the Closing Date
(as set forth in Section 1.2 hereof. The Purchase Price shall be reduced by the
fees described in Section 14.9 hereof.
1.2 Closings. On the date hereof the Company shall issue to the Buyers and
the Buyer's shall purchase 22,000 shares of Series C Preferred Shares, which
shall have the right and designations set forth on Exhibit A hereto, of which
Three Million Two Hundred Eight Thousand Seven Hundred Two Dollars ($3,208,702)
shall be purchased for consideration solely consisting of surrendering the Prior
Securities and Eighteen Million Seven Hundred Ninety One Thousand Two Hundred
Ninety Eight Dollars ($18,791,298) shall be purchased by an additional funding
(consisting of a combination of a wire transfer of immediately available funds
and the assignment of certain other securities as set forth on Exhibit E) by the
Buyer (the "First Closing Date") and on the date the Registration Statement is
declared effective by the SEC the Company shall issue to the Buyers and the
Buyer's shall purchase 5,000 shares of Series C Preferred Shares, which shall
have the right and designations set forth on Exhibit A hereto for Five Million
Dollars ($5,000,000) (the "Second Closing Date") (the First Closing Date and the
Second Closing Date are collectively referred to as the "Closing Dates"). In no
event shall the Closing Dates occur prior to the satisfaction of the conditions
precedent set forth in Sections 9, 10 and 11 hereof. The Closing Dates shall
take place at the offices of the Buyer or at such other place as may be mutually
agreed upon by the Buyers and the Company. On the Closing Dates, the Company
shall deliver to the Buyers certificates representing the Series C Preferred
Shares.
1.3 Issuance of Shares. At the First Closing, subject to the terms,
restrictions and conditions of this Agreement the Company shall issue, sell, and
deliver to the Buyers Twenty Two Thousand (22,000) shares of Series C Preferred
Shares, which shall have the right and designations set forth on Exhibit A
hereto and on the Second Closing Date, subject to the terms, restrictions and
conditions of this Agreement the Company shall issue, sell, and deliver to the
Buyers Five Thousand (5,000) shares of Series C Preferred Shares, which shall
have the right and designations set forth on Exhibit A hereto. All of the Series
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C Preferred Shares and the Conversion Shares into which such the Series C
Preferred Shares are convertible shall be free and clear of all liens, claims,
pledges, mortgages, restrictions, obligations, security interests and
encumbrances of any kind, nature and description (collectively, "Encumbrances").
2. ADDITIONAL AGREEMENTS.
2.1 Investor Registration Rights Agreement. Contemporaneously with the
execution and delivery of this Agreement the parties hereto are executing and
delivering a Investor Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B, pursuant to which the Company shall register the
Conversion Shares underlying the Series C Preferred Shares with the SEC.
2.2 Irrevocable Transfer Agent Agreement. Contemporaneously with the
execution and delivery of this Agreement, the parties hereto are executing and
delivering an Irrevocable Transfer Agent Instructions, substantially in the form
attached hereto as Exhibit C.
Collectively the Investor Registration Rights Agreement and the
Irrevocable Transfer Agent Instructions, shall be referred to as the
"Transaction Documents".
3. COVENANTS.
3.1 Access and Inspection, Etc. The Company shall allow the Buyers and its
authorized representatives full access during normal business hours from and
after the date hereof and prior to the Closing Date to all of the properties,
books, contracts, commitments and records of the Company for the purpose of
making such investigations as the Buyers may reasonably request in connection
with the transactions contemplated hereby, and shall cause the Company to
furnish the Buyers such information concerning its affairs as the Buyers may
reasonably request. The Company has caused and shall cause its personnel to
assist the Buyers in making such investigation and shall use their best efforts
to cause the counsel, accountants, engineers and other nonemployee
representatives of the Company to be reasonably available to Buyers for such
purposes.
3.2 Public Announcements. The parties will consult with each other before
issuing any press releases or otherwise making any public statement with respect
to this Agreement or any of the transactions contemplated hereby and no party
will issue any such press release or make any such public statement without the
prior written consent of the other parties, except as may be required by law or
by the rules and regulations of any governmental authority or securities
exchange.
3.3 Best Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties shall use its best efforts in good faith to take
or cause to be taken as promptly as practicable all reasonable actions that are
within its power to cause to be fulfilled those conditions precedent to its
obligations or the obligations of the other parties to consummate the
transactions contemplated by this Agreement and the Transaction Documents that
are dependent upon its actions.
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3.4 Further Assurances. The parties shall deliver any and all other
instruments or documents required to be delivered pursuant to, or necessary or
proper in order to give effect to, the provisions of this Agreement, including,
without limitation, to issue the Series C Preferred Shares and to consummate the
transactions contemplated by this Agreement and the Transaction Documents.
4. NEGATIVE COVENANTS. The following covenants shall remain in effect for so
long as the Series C Preferred Shares are outstanding:
4.1 Lock-up Agreement. Not Applicable.
4.2 Use of Proceeds. The Company covenants to the Buyers that the net
proceeds to be received by the Company in this transaction shall be used to fund
general corporate purposes and any acquisitions approved by the Board of
Directors of the Company.
4.3 No Merger or Sale of Business. The Company hereby agrees that it will
not merge or consolidate with any person or entity unless it is the servicing
corporation, or sell, lease or otherwise dispose of its assets or liquidate,
dissolve, recapitalize or reorganize.
4.4 No Indebtedness. The Company shall not incur any indebtedness for
borrowed money or become a guarantor or otherwise contingently liable for any
such indebtedness except for trade payables or purchase money obligations
incurred in the ordinary course of business.
4.5 No Other Registration Statements. The Company shall not file any other
registration statements on any form (including but not limited to forms X-0,
XX-0, X-0 and S-8) without the prior written consent of the Buyers except that
the Company may file a registration statement on Form S-8 to register up to 60
million shares underlying its 2005 Stock Option Plan..
4.6 Restriction on Issuance of the Capital Stock. The Company covenants
and agrees that, so long as any of the Series C Preferred Stock remain unpaid
and unconverted, the Company shall not, without the prior consent of the Buyers,
(i) issue or sell any common stock or preferred stock less than the closing bid
price on the date of issuance, (ii) issue or sell any preferred stock, warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire common stock less than the closing bid price
or the date of issuance, (iii) enter into any security instrument granting the
holder a security interest in any of the assets of the Company or any subsidiary
now existing or later created or acquired, or (iv) file any registration
statements on Form S-8 (except that the Company may file a registration
statement on Form S-8 to register up to 60 million shares underlying its 2005
Stock Option Plan). Excluded from the restriction above is any security,
provided such security is issued at a price which is greater than or equal to
the arithmetic average of the closing bid prices of the Company's Common Stock
for the ten (10) consecutive trading days immediately preceding the date of
issuance, any of the following: (a) any issuance by the Company of securities in
connection with a strategic partnership or a joint venture (the primary purpose
of which is not to raise equity capital), (b) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license, or other assets of another person or entity (c)
options to purchase shares of Common Stock, provided the exercise price of such
options is not less than the Closing Bid Price of the Common Stock on the date
of issuance of such option.
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5. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE COMPANY.
To induce Buyers to enter into this Agreement and to consummate the
transactions contemplated hereby, the Company represents and warrants to and
covenants with the Buyers as follows:
5.1 Organization; Compliance. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company is: (a) entitled to own or lease its properties and to carry on its
business as and in the places where such business is now conducted, and (b) duly
licensed and qualified in all jurisdictions where the character of the property
owned by it or the nature of the business transacted by it makes such license or
qualification necessary, except where the failure to do so would not result in a
material adverse effect on the Company.
5.2 Capitalization and Related Matters.
(a) As of the date hereof, the authorized capital stock of the
Company consists of One Billion (1,000,000,000) shares of common stock, par
value $0.01 per share and Twenty Five Million (25,000,000) shares of Preferred
Shares, par value $0.01. As of the date hereof, the Company had
471,030,711shares of common stock issued and 466,111,091 shares of common stock
outstanding and zero (0) shares of Preferred Shares issued and outstanding. No
Common Stock (i) was issued in violation of the preemptive rights of any
shareholder, or (ii) is held as treasury stock.
(b) Except as set forth on Schedule 5.2(b) in the Company's the
Company's Form 10-KSB for the fiscal year ended December 31, 2004 and Form
10-QSB for the fiscal quarters ended March 31, 2005, June 30, 2005 and September
30, 2005 (the "SEC Documents") there are no outstanding any securities
convertible into Common Stock or any other capital stock of the Company nor any
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, such capital stock or
securities convertible into such capital stock (collectively, "Securities
Rights"). The Company: (i) is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its capital
stock; or (ii) has no liability for dividends or other distributions declared or
accrued, but unpaid, with respect to any capital stock.
(c) The Company is not a party to any agreement, understanding or
arrangement, direct or indirect, relating to any class or series of the
Company's capital stock, including, without limitation, any voting agreement,
restriction on resale, shareholder agreement or registration rights agreement,
other than the Permitted Registration Rights Agreements.
(d) The Company shall, on or before July 1, 2006, effectuate an
increase its authorized capital stock to a sufficient number of shares of Common
Stock to satisfy the reservation requirements of this Agreement. It shall be an
event of default hereunder if the Company fails to strictly comply with its
obligations under this Section 5.2(d)
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(e) On the date hereof, the Company shall reserve out of its
authorized Common Stock (i) 100,000,000 shares of Common Stock for issuance upon
conversion of the Series C Preferred Shares and (ii) 75,000,000 shares of Common
Stock for issuance upon exercise of the Warrants. On or before July 1, 2006, the
Company shall reserve an additional 250,000,000 shares of Common Stock for
issuance upon conversion of the Series C Preferred Shares.
5.3 Subsidiaries and Investments.
(a) The SEC Documents disclose with respect to each Subsidiary (as
defined below) (i) its name, (ii) the jurisdiction of its organization, (iii)
the number of its authorized shares or other equity interests, (iv) the number
of its outstanding shares or other equity interests of each class or series, and
(v) the name of the owner and the number and percentage of outstanding shares or
other equity interests of each class or series of such Subsidiary owned of
record and, if different, owned beneficially by the Company and any other
person. All of the outstanding capital stock and other equity interests of each
of the Subsidiaries is validly issued, fully paid and nonassessable and was
issued in compliance with all applicable federal and state securities or "blue
sky" laws and regulations. There are no securities rights relating to any shares
of capital stock, other equity interests or other securities of any of the
Subsidiaries. The Company and the Subsidiaries have good, marketable and
exclusive title to the shares or other equity interests disclosed in the SEC
Documents as being owned by each of them, free and clear of all Encumbrances.
All rights and powers to vote such shares or other equity interests are held
exclusively by the Company, directly or indirectly through one or more of the
Subsidiaries, as the case may be. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the corporate power and authority to own
or lease its properties and to carry on its business as now conducted. For the
purposes hereof, a "Subsidiary" means any corporation, limited liability
company, partnership, joint venture or other entity in which the Company owns,
directly or indirectly, more than 20% of the outstanding voting securities or
equity interests.
(b) Except as disclosed in SEC Documents, the Company does not own,
nor has it ever owned, any equity interest in any corporation, limited liability
company, partnership, joint venture or other entity.
5.4 Execution; No Inconsistent Agreements; Etc.
(a) This Agreement is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy or similar laws affecting the enforcement of creditors'
rights generally, and the availability of equitable remedies.
(b) The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated hereby will not,
constitute a breach or violation of the charter or bylaws of the Company, or a
default under any of the terms, conditions or provisions of (or an act or
omission that would give rise to any right of termination, cancellation or
acceleration under) any note, bond, mortgage, lease, indenture, agreement or
obligation to which the Company is a party, pursuant to which the Company
otherwise receives benefits, or to which any of the properties of the Company is
subject.
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5.5 Corporate Records. The statutory records, including the stock register
and minute books of the Company, fully reflect all issuances, transfers and
redemptions of its capital stock, correctly show and will correctly show the
total number of shares of its capital stock issued and outstanding on the date
hereof and on the Closing Date, the charter or other organizational documents
and all amendments thereto, and bylaws as amended and currently in force.
5.6 Financial Statements.
(a) All the foregoing financial statements, and any financial
statements delivered pursuant to subsection (c) below, are referred to herein
collectively as the "Company Financial Statements."
(b) The Company Financial Statements have been and will be prepared
in accordance with U.S. GAAP, applied on a consistent basis (except that the
unaudited statements do not contain all the disclosures required by GAAP), and
fairly reflect and will reflect in all material respects the financial condition
of the Company as at the dates thereof and the results of the operations of the
Company for the periods then ended.
5.7 Liabilities. The Company has no material debt, liability or obligation
of any kind, whether accrued, absolute, contingent or otherwise, except: (a)
those reflected in the SEC Documents, including the notes thereto, and (b)
liabilities incurred in the ordinary course of business, none of which have had
or will have a material adverse effect on the financial condition of the
Company.
5.8 Absence of Changes. Except as described in the SEC Documents and in
the other Schedules to this Agreement:
(a) there has not been any adverse change in the business, assets,
liabilities, results of operations or financial condition of the Company or in
its relationships with suppliers, customers, employees, lessors or others other
than changes in the ordinary course of business, none of which, singularly or in
the aggregate, have had or will have a material adverse effect on the business,
properties or financial condition of the Company; and
(b) the Company has complied with the covenants and restrictions set
forth in this Agreement.
5.9 Title to Properties. The Company has good and marketable title to all
of its properties and assets, real and personal, including, but not limited to,
those reflected in the SEC Documents (except as since sold or otherwise disposed
of in the ordinary course of business, or as expressly provided for in this
Agreement), free and clear of all Encumbrances of any kind or character except:
(a) those securing liabilities of the Company incurred in the ordinary course
(with respect to which no material default exists); (b) liens of real estate and
personal property taxes; and (c) imperfections of title and Encumbrances, if
any, which, in the aggregate (i) are not substantial in amount; (ii) do not
detract from the value of the property subject thereto or impair the operations
of the Company or; and (iii) do not have a material adverse effect on the
business, properties or assets of the Company.
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5.10 Compliance with Law. The business and activities of the Company has
at all times been conducted in accordance with its articles of incorporation and
bylaws and any applicable law, regulation, ordinance, order, License (defined
below), permit, rule, injunction or other restriction or ruling of any court or
administrative or governmental agency, ministry, or body, except where the
failure to do so would not result in a material adverse effect on the Company.
5.11 Taxes. The Company has duly filed all material federal, state, local
and foreign tax returns and reports, and all returns and reports of all other
governmental units having jurisdiction with respect to taxes imposed on it or on
its income, properties, sales, franchises, operations or employee benefit plans
or trusts, all such returns were complete and accurate when filed, and all taxes
and assessments payable by the Company have been paid to the extent that such
taxes have become due. All taxes accrued or payable by the Company for all
periods have been accrued or paid in full, whether or not due and payable and
whether or not disputed. The Company has withheld proper and accurate amounts
from its employees for all periods in full compliance with the tax withholding
provisions of applicable foreign, federal, state and local tax laws. There are
no waivers or agreements by the Company for the extension of time for the
assessment of any taxes. The tax returns of the Company have never been examined
by any authority or other administrative body or court of any state or country.
There are not now any examinations of the income tax returns of the Company
pending, or any proposed deficiencies or assessments against the Company of
additional taxes of any kind. The Company shall duly and timely prepare and file
all material federal, state, local and foreign tax returns and reports necessary
and all returns and reports of all other governmental units having jurisdiction
with respect to taxes imposed on the Company or on its income, properties,
sales, franchises, operations or employee benefit plans or trusts, and all such
returns will be complete and accurate when filed.
5.12 Real Properties. The Company does not have an interest in any real
property, except for the Leases (as defined below).
5.13 Leases of Real Property. All leases pursuant to which the Company is
lessee or lessor of any real property (the "Leases") are listed in the SEC
Documents and are valid and enforceable in accordance with their terms. There is
not under any of such leases (a) any material default or any claimed material
default by the Company or any event of default or event which with notice or
lapse of time, or both, would constitute a material default by the Company and
in respect to which the Company has not taken adequate steps to prevent a
default on its part from occurring, or (b) to the knowledge of the Company, any
material default by any lessee of the Company or any event of default or event
which with notice or lapse of time, or both, would constitute a material default
by any lessee. The copies of the Leases heretofore furnished to Buyers are true,
correct and complete, and such Leases have not been modified in any respect
since the date they were so furnished, and are in full force and effect in
accordance with their terms. The Company is lawfully in possession of all real
properties of which they are a lessee (the "Leased Properties").
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5.14 Contingencies. Except as disclosed in the SEC Documents, there are no
actions, suits, claims or proceedings pending, or to the knowledge of the
Company threatened against, by or affecting, the Company in any court or before
any arbitrator or governmental agency that may have a material adverse effect on
the Company or which could materially and adversely affect the right or ability
of the Company to consummate the transactions contemplated hereby. To the
knowledge of the Company, there is no valid basis upon which any such action,
suit, claim, or proceeding may be commenced or asserted against it. There are no
unsatisfied judgments against the Company and no consent decrees or similar
agreements to which the Company is subject and which could have a material
adverse effect on the Company.
5.15 Products Liability; Warranties; Insurance. The Company will have not
loss, damage, liability, fine, penalty, cost and expense (each, a "Liability")
that is not fully covered by insurance relating to any product manufactured,
distributed or sold by the Company prior to the Closing, whether or not such
Liability is related to products that are defective or improperly designed or
manufactured or are in breach of any express or implied product warranty.
5.16 Intellectual Property Rights.
(a) The Company owns and possesses all right, title and interest in
and to, or has a valid license to use, all of the Proprietary Rights (as defined
below) necessary for the operation of its business as presently conducted and
none of such Proprietary Rights have been abandoned;
(b) no claim by any third party contesting the validity,
enforceability, use or ownership of any such Proprietary Rights has been made,
is currently outstanding or, to the knowledge of the Company, is threatened, and
to the knowledge of the Company there is no reasonable basis for any such claim;
(c) neither the Company nor any registered agent of any of the
foregoing has received any notice of, nor is the Company aware of any reasonable
basis for an allegation of, any infringement or misappropriation by, or conflict
with, any third party with respect to such Proprietary Rights, nor has the
Company, or any registered agent of any of them received any claim of
infringement or misappropriation of or other conflict with any Proprietary
Rights of any third party;
(d) the Company has not infringed, misappropriated or otherwise
violated any Proprietary Rights of any third parties, and the Company is not
aware of any infringement, misappropriation or conflict which will occur as a
result of the continued operation of the Company as presently operated and as
contemplated to be operated or as a result of the consummation of the
transactions contemplated hereby; and
(e) all employees who have contributed to or participated in the
conception and/or development of all or any part of the Proprietary Rights which
are not licensed to the Company from a third party either (i) have been party to
a "work-for-hire" arrangement or agreement with the Company, in accordance with
applicable federal and state law, that has accorded the Company full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising, or (ii) have executed appropriate instruments of assignment in
favor of the Company as assignee that have conveyed to the Company full,
effective and exclusive ownership of all tangible and intangible property
thereby arising.
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(f) As used herein, the term "Proprietary Rights" means all
proprietary information of the Company, as the case may be, including all
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice), all trademarks, service
marks, trade dress, trade names, corporate names, domain names, copyrights, all
trade secrets, confidential information, ideas, formulae, compositions,
know-how, processes and techniques, drawings, specifications, designs, logos,
plans, improvements, proposals, technical and computer data, documentation and
software, financial, business and marketing plans, and related information and
all other proprietary, industrial or intellectual property rights relating to
the business of the Company, including those proprietary, industrial or
intellectual property rights found at the Company's websites listed in the SEC
Documents.
(g) the consummation of the transactions contemplated by this
Agreement will not adversely affect the right of the Company to continue to use
the Proprietary Rights. To the extent that the registration of any Proprietary
Right is required by law, such Proprietary Right has been duly and validly
registered or filed, and any fees that are necessary to maintain in force any
Proprietary Rights or registrations thereof have been paid. The SEC Documents
sets forth a list and description of the copyrights, trademarks, service marks,
trade dress, trade names and domain names used or held by the Company and, where
appropriate, the date, serial or registration number, and place of any
registration thereof.
5.17 Material Contracts. Schedule 5.17 or the SEC Documents contain a
complete list of all contracts of the Company that involve consideration in
excess of the equivalent of Twenty Five Thousand Dollars ($25,000) or have a
term of one year or more (the "Material Contracts"). Except as disclosed in the
SEC Documents: (a) the Company has performed all material obligations to be
performed by them under all such contracts, and is not in material default
thereof, and (b) no condition exists or has occurred which with the giving of
notice or the lapse of time, or both, would constitute a material default by the
Company or accelerate the maturity of, or otherwise modify, any such contract,
and (c) all such contracts are in full force and effect. No material default by
any other party to any of such contracts is known or claimed by the Company to
exist.
5.18 Employee Benefit Matters.
(a) Except as disclosed in the SEC Documents, the Company does not
provide, nor is it obligated to provide, directly or indirectly, any benefits
for employees other than salaries, sales commissions and bonuses, including, but
not limited to, any pension, profit sharing, stock option, retirement, bonus,
hospitalization, insurance, severance, vacation or other employee benefits
(including any housing or social fund contributions) under any practice,
agreement or understanding.
(b) Each employee benefit plan maintained by or on behalf of the
Company or any other party (including any terminated pension plans) which covers
or covered any employees or former employees of the Company (collectively, the
"Employee Benefit Plan") is listed in the SEC Documents. The Company has
delivered to Buyers true and complete copies of all such plans and any related
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documents. With respect to each such plan: (a) no litigation, administrative or
other proceeding or claim is pending, or to the knowledge of the Company,
threatened or anticipated involving such plan; (b) there are no outstanding
requests for information by participants or beneficiaries of such plan; and (c)
such plan has been administered in compliance in all material respects with all
applicable laws and regulations.
(c) The Company has timely made payment in full of all contributions
to all of the Employee Benefit Plans which the Company was obligated to make
prior to the date hereof; and there are no contributions declared or payable by
the Company to any Employee Benefit Plan which, as of the date hereof, has not
been paid in full.
5.19 Possession of Franchises, Licenses, Etc. The Company: (a) possesses
all material franchises, certificates, licenses, permits and other
authorizations (collectively, the "Licenses") from governmental authorities,
political subdivisions or regulatory authorities that are necessary for the
ownership, maintenance and operation of its business in the manner presently
conducted; (b) are not in violation of any provisions thereof; and (c) have
maintained and amended, as necessary, all Licenses and duly completed all
filings and notifications in connection therewith.
5.20 Environmental Matters. Except as disclosed in the SEC Documents: (i)
the Company is not in violation, in any material respect, of any Environmental
Law (as defined below); (ii) the Company has received all permits and approvals
with respect to emissions into the environment and the proper collection,
storage, transport, distribution or disposal of Wastes (as defined below) and
other materials required for the operation of its business at present operating
levels; and (iii) the Company is not liable or responsible for any material
clean up, fines, liability or expense arising under any Environmental Law, as a
result of the disposal of Wastes or other materials in or on the property of the
Company (whether owned or leased), or in or on any other property, including
property no longer owned, leased or used by the Company. As used herein, (a)
"Environmental Laws" means, collectively, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act,
as amended, the Clean Water Act, as amended, any other "Superfund" or
"Superlien" law or any other federal, or applicable state or local statute, law,
ordinance, code, rule, regulation, order or decree (foreign or domestic)
regulating, relating to, or imposing liability or standards of conduct
concerning, Wastes, or the environment; and (b) "Wastes" means and includes any
hazardous, toxic or dangerous waste, liquid, substance or material (including
petroleum products and derivatives), the generation, handling, storage,
disposal, treatment or emission of which is subject to any Environmental Law.
5.21 Agreements and Transactions with Related Parties. Except as disclosed
on the SEC Documents the Company is not, a party to any contract, agreement,
lease or transaction with, or any other commitment to, (a) a shareholder, (b)
any person related by blood, adoption or marriage to shareholder, (c) any
director or officer of the Company, (d) any corporation or other entity in which
any of the foregoing parties has, directly or indirectly, at least five percent
(5.0%) beneficial interest in the capital stock or other type of equity interest
in such corporation or other entity, or (e) any partnership in which any such
party is a general partner or a limited partner having a five percent (5%) or
more interest therein (any or all of the foregoing being herein referred to as a
"Related Party" and collectively as the "Related Parties"). Without limiting the
- 11 -
generality of the foregoing, except as set forth in the SEC Documents, (a) no
Related Party, directly or indirectly, owns or controls any assets or properties
which are or have been used in the business of the Company, and (b) no Related
Party, directly or indirectly, engages in or has any significant interest in or
connection with any business: (i) which is or which within the last two (2)
years has been a competitor, customer or supplier of, or has done business with,
the Company, or (ii) which as of the date hereof sells or distributes products
or provides services which are similar or related to the products or services of
the Company.
5.22 Business Practices. Except as disclosed in the SEC Documents, the
Company has not, at any time, directly or indirectly, made any contributions or
payment, or provided any compensation or benefit of any kind, to any municipal,
county, state, federal or foreign governmental officer or official, or any other
person charged with similar public or quasi-public duties, or any candidate for
political office. The Company's books, accounts and records (including, without
limitation, customer files, product packaging and invoices) accurately describe
and reflect, in all material respects, the nature and amount of the Company's
products, purchases, sales and other transactions. Without limiting the
generality of the foregoing, the Company has not engaged, directly or
indirectly, in: (a) the practice known as "double-invoicing" or the use or
issuance of pro-forma or dummy invoices; or (b) the incorrect or misleading
labeling, marketing or sale of refurbished goods as new goods.
5.23 Shareholder Matters. None of the matters set forth in this Agreement
require the approval of the Company's shareholders.
5.24 Full Disclosure. No representation or warranty of the Company
contained in this Agreement, and none of the statements or information
concerning the Company contained in this Agreement and the Schedules, contains
or will contain any untrue statement of a material fact nor will such
representations, warranties, covenants or statements taken as a whole omit a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
6. REPRESENTATIONS AND WARRANTIES OF BUYERS.
To induce the Company to enter into this Agreement and to consummate the
transactions contemplated hereby, the Buyers represent and warrant to and
covenant with the Company as follows:
6.1 Organization. Each Buyer is a limited partnership duly organized,
validly existing and in good standing under the laws of Delaware. The Buyers
have all requisite power and authority to execute, deliver and carry out the
terms of this Agreement and the consummation of the transactions contemplated
herein.
6.2 Execution; No Inconsistent Agreements; Etc.
(a) The execution and delivery of this Agreement and the performance
of the transactions contemplated hereby have been duly and validly authorized
and approved by the Buyers and this Agreement is a valid and binding agreement
of the Buyers, enforceable against the Buyers in accordance with its terms,
except as such enforcement may be limited by bankruptcy or similar laws
affecting the enforcement of creditors' rights generally, and the availability
of equitable remedies.
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(b) The execution and delivery of this Agreement by the Buyers does
not, and the consummation of the transactions contemplated hereby will not,
constitute a breach or violation of the charter or bylaws of the Buyers, or a
default under any of the terms, conditions or provisions of (or an act or
omission that would give rise to any right of termination, cancellation or
acceleration under) any material note, bond, mortgage, lease, indenture,
agreement or obligation to which the Buyers are a party, pursuant to which any
of them otherwise receive benefits, or by which any of their properties may be
bound.
6.3 Securities Laws.
(a) The Buyers are purchasing the Series C Preferred Shares for
investment purposes.
(b) Investment Representations. The Buyers have been offered the
opportunity to ask questions of, and receive answers from the Company's
management, and the Buyers have been given full and complete access to all
available information and data relating to the business and assets of the
Company and has obtained such additional information about the Company as the
Buyers have deemed necessary in order to evaluate the opportunities, both
financial and otherwise, with respect to the Company and, except as set forth
herein, has not relied on any representation, warranty or other statement
concerning the Company and its evaluation of the decision to consummate the
transactions contemplated herein. In its judgment, the Buyers are sufficiently
familiar with the Company to enable the Buyers to proceed with the transactions
contemplated hereby.
(c) The Buyers are "accredited investors" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
(d) The Buyers are sophisticated investors familiar with the type of
risks inherent in the acquisition of securities such as the Series C Preferred
Shares.
7. CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING.
The Company covenants and agrees that between the date hereof and the
Closing Date:
7.1 Business in the Ordinary Course. Except as set forth in the SEC
Documents, the business of the Company shall be conducted only in the ordinary
course, and consistent with past practice. Without limiting the generality of
the foregoing, and except as set forth in the SEC Documents or as otherwise
approved by the Buyers:
(a) Except for the transaction contemplated hereby, the Company
shall not enter into any contract, agreement or other arrangement which would
constitute a Material Contract, except for contracts to sell or supply goods or
services to customers in the ordinary course of business at prices and on terms
substantially consistent with the prior operating practices of the Company;
- 13 -
(b) except for sales of personal property in the ordinary course of
its business, the Company shall not sell, assign, transfer, mortgage, convey,
encumber or otherwise dispose of, or cause the sale, assignment, transfer,
mortgage, conveyance, encumbrance or other disposition of any of the assets or
properties of the Company or any interest therein;
(c) the Company shall not acquire any material assets, except
expenditures made in the ordinary course of business as reasonably necessary to
enable the Company to conduct its normal business operations and to maintain its
normal inventory of goods and materials, at prices and on terms substantially
consistent with current market conditions and prior operating practices;
(d) the books, records and accounts of the Company shall be
maintained in the usual, regular and ordinary course of business on a basis
consistent with prior practices and in accordance with GAAP;
(e) the Company shall use its best efforts to preserve its business
organization, to preserve the good will of its suppliers, customers and others
having business relations with the Company, and to retain the services of key
employees and agents of the Company;
(f) except as it may terminate in accordance with the terms of this
Agreement, the Company shall keep in full force and effect, and not cause a
default of any of its obligations under, each of their contracts and
commitments;
(g) the Company shall duly comply in all material respects with all
laws applicable to it and to the conduct of its business;
(h) the Company shall not create, incur or assume any liability or
indebtedness, except in the ordinary course of business consistent with past
practices;
(i) other than as contemplated in this Agreement, the Company shall
not apply any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any shareholder or any Related Party; and
(j) the Company shall not take or omit to take any action which
would render any of the representations or warranties untrue or misleading, or
which would be a breach of any of the covenants.
7.2 No Material Changes. Except as contemplated in this Agreement, the
Company shall not materially alter its organization, capitalization, or
financial structure, practices or operations. Without limiting the generality of
the foregoing:
(a) no change shall be made in the articles of incorporation and
bylaws of the Company;
(b) no change shall be made in the authorized or issued capital
stock of the Company;
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(c) the Company shall not issue or grant any right or option to
purchase or otherwise acquire any of its capital stock or other securities;
(d) no dividend or other distribution or payment shall be declared
or made with respect to any of the capital stock of the Company; and
(e) no change shall be made affecting the banking arrangements of
the Company.
7.3 Notification. Each party to this Agreement shall promptly notify the
other parties in writing of the occurrence, or threatened occurrence, of any
event that would constitute a breach or violation of this Agreement by any party
or that would cause any representation or warranty made by the notifying party
in this Agreement to be false or misleading in any respect. The Company will
promptly notify the Buyers of any event that could have a material adverse
effect on the business, assets, financial condition or prospects of the Company.
The Company shall have the right to update the Schedules to this Agreement
immediately prior to Closing; provided, if such update discloses any breach of a
representation, warranty, covenant or obligation of the Company, the Buyers
shall have the rights to then exercise its available rights and remedies
hereunder.
8. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.
The obligation of the Buyers and the Company to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, on
or before the Closing, of each of the following conditions; any or all of which
may be waived in whole or in part by the joint agreement of the Buyers and the
Company:
8.1 Absence of Actions. No action or proceeding shall have been brought or
threatened before any court or administrative agency to prevent the consummation
or to seek damages in a material amount by reason of the transactions
contemplated hereby, and no governmental authority shall have asserted that the
within transactions (or any other pending transaction involving the Buyers or
the Company when considered in light of the effect of the within transactions)
shall constitute a violation of law or give rise to material liability on the
part of the Company or the Buyers.
8.2 Consents. The parties shall have received from any suppliers, lessors,
lenders, lien holders or governmental authorities, bodies or agencies having
jurisdiction over the transactions contemplated by this Agreement, or any part
hereof, such consents, authorizations and approvals as are necessary for the
consummation hereof.
9. CONDITIONS TO OBLIGATIONS OF THE BUYERS.
All obligations of the Buyers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment and satisfaction of each and
every of the following conditions on or prior to the Closing, any or all of
which may be waived in whole or in part by the Buyers:
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9.1 Representations and Warranties. The representations and warranties
contained in Section 5 of this Agreement and in any certificate, instrument,
schedule, agreement or other writing delivered by or on behalf of the Company in
connection with the transactions contemplated by this Agreement shall be true,
correct and complete in all material respects (except for representations and
warranties which are by their terms qualified by materiality, which shall be
true, correct and complete in all respects) as of the date when made and shall
be deemed to be made again at and as of the Closing Date and shall be true,
correct and complete at and as of such time in all material respects (except for
representations and warranties which are by their terms qualified by
materiality, which shall be true, correct and complete in all respects).
9.2 Certificate of Designations, Preferences and Rights. The Company shall
have filed the Certificate of Designations, Preferences and Rights for the
Series C Preferred Shares with the Delaware Secretary of State and provided the
Buyers a stamped filed copy.
9.3 Compliance with Agreements and Conditions. The Company shall have
performed and complied with all material agreements and conditions required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
9.4 Absence of Material Adverse Changes. No material adverse change in the
business, assets, financial condition, or prospects of the Company shall have
occurred, no substantial part of the assets of the Company not substantially
covered by insurance shall have been destroyed due to fire or other casualty,
and no event shall have occurred which has had or will have a material adverse
effect on the business, assets, financial condition or prospects of the Company.
9.5 Board Approval. The Company's Board of Directors shall have taken the
action required by them pursuant to this Agreement, including an amendment to
the Company's articles of incorporation to adopt the rights and preferences of
the Series C Preferred Shares, authorize issuance of the Series C Preferred
Shares and the Conversion Shares to be issued upon conversion of the Series C
Preferred Shares and the reservation of the shares of Conversion Shares to be
issued upon conversion of the Series C Preferred Shares.
9.6 Other Agreements. The Company shall have executed and delivered to the
Buyers the Transaction Documents all in a form acceptable to the Buyers.
9.7 Other Documents. The Company shall have delivered to the Buyers such
other documents and instruments as the Buyers deems reasonably necessary or
desirable to consummate the transactions contemplated hereby.
9.8 The Buyers(s) shall have received an opinion of counsel from Counsel
to the Company in a form satisfactory to the Buyers.
9.9 The Company shall have provided to the Buyers a certificate of good
standing from the secretary of state from Delaware.
9.10 The Company shall have provided to the Investor an acknowledgement,
to the satisfaction of the Investor, from its certified public accountants as to
its ability to provide all consents required in order to file a registration
statement in connection with this transaction.
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9.11 The Company shall have satisfied its obligations to increase its
authorized capital stock pursuant to Section 5.2(d) prior to the Second Closing.
All documents delivered to the Buyers shall be in form and substance
reasonably satisfactory to the Buyers.
10. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
All of the obligations of the Company to consummate the transactions
contemplated by this Agreement are subject to the fulfillment and satisfaction
of each and every of the following conditions on or prior to the Closing, any or
all of which may be waived in whole or in part by the Company:
10.1 Representations and Warranties. The representations and warranties
contained in Section 6 of this Agreement and in any certificate, instrument,
schedule, agreement or other writing delivered by or on behalf of the Buyers in
connection with the transactions contemplated by this Agreement shall be true
and correct in all material respects (except for representations and warranties
which are by their terms qualified by materiality, which shall be true, correct
and complete in all respects) when made and shall be deemed to be made again at
and as of the Closing Date and shall be true at and as of such time in all
material respects (except for representations and warranties which are by their
terms qualified by materiality, which shall be true, correct and complete in all
respects).
10.2 Compliance with Agreements and Conditions. The Buyers shall have
performed and complied with all material agreements and conditions required by
this Agreement to be performed or complied with by the Buyers prior to or on the
Closing Date.
11. EVENTS OF DEFAULT.
11.1 An "Event of Default" wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
11.2 The Company shall fail to observe or perform any covenant, agreement
or warranty contained in, or otherwise commit any breach or default of any
provision contained herein or in any Transaction Document (as defined in the
Investment Agreement of even date herewith) which is not cured within any
applicable cure period;
11.3 The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the Company under
any applicable bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of sixty one (61) days; or the Company or
any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
- 17 -
of relief or other order approving any such case or proceeding is entered; or
the Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
11.4 The Company or any subsidiary of the Company shall default in any of
its obligations under any other obligation or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding One Hundred Thousand Dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
11.5 The Common Stock shall cease to be quoted for trading or listed for
trading on the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmallCap Market, New
York Stock Exchange or the Nasdaq National Market (each, a "Subsequent Market")
and shall not again be quoted or listed for trading thereon within five (5)
Trading Days of such delisting; or
11.6 The Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a conversion
or the Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions of the Series C Preferred Stock in accordance with the terms hereof.
11.7 During the time that any portion of the Series C Preferred Stock is
outstanding, if any Event of Default has occurred, all of the outstanding
principal and unpaid dividends under the Series C Preferred Shares shall be
immediately due and payable notwithstanding any limitations contained in the
Certificate of Designations or the Transaction Documents, as this term is
defined in the Investment Agreement. Upon an event of default the Holders shall
have the right (but not the obligation) to convert the entire amount of the
Series C Preferred Shares outstanding as provided for in the Certificate of
Designations.
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12. INDEMNITY.
12.1 Indemnification by the Company. The Company (hereinafter
collectively called the "Company Indemnitor") shall defend, indemnify and hold
harmless the Buyers, their respective general partners, direct and indirect
parent corporations, subsidiaries and affiliates, their officers, members,
directors, employees, attorneys and agents (hereinafter collectively called the
"Buyers Indemnitees") against and in respect of any and all loss, damage,
liability, fine, penalty, cost and expense, including reasonable attorneys' fees
and amounts paid in settlement (collectively, the "Buyers Losses"), suffered or
incurred by any Buyers Indemnitee by reason of, or arising out of:
(a) any misrepresentation, breach of warranty or breach or
nonfulfillment of any covenant, obligation or agreement of the Company contained
in this Agreement or in any certificate, schedule, instrument or document
delivered to the Buyers by or on behalf of the Company pursuant to the
provisions of this Agreement (without regard to materiality thresholds contained
therein); and
(b) any liabilities of the Company of any nature whatsoever
(including tax liability, penalties and interest), whether accrued, absolute,
contingent or otherwise, (i) existing as of the date hereof on the Company's
Balance Sheet, and required to be shown therein in accordance with GAAP, to the
extent not reflected or reserved against in full in; or (ii) arising or
occurring between January 31, 2005 and the date of this Agreement, except for
liabilities arising in the ordinary course of business, none of which shall have
a material adverse effect on the Company.
(c) Indemnification by the Buyers. The Buyers (hereinafter called
the "Buyers Indemnitors") shall defend, indemnify and hold harmless the Company,
its direct and indirect parent corporations, subsidiaries and affiliates, their
officers, members, directors, employees, attorneys and agents (hereinafter
called "Company Indemnitee") against and in respect of any and all loss, damage,
liability, cost and expense, including reasonable attorneys' fees and amounts
paid in settlement (collectively, "Company Losses"), suffered or incurred by
Company Indemnitee by reason of or arising out of any misrepresentation, breach
of warranty or breach or non-fulfillment of any material covenant, obligation or
agreement of the Buyers contained in this Agreement or in any other certificate,
schedule, instrument or document delivered to the Company by or on behalf of the
Buyers pursuant to the provisions of this Agreement (without regard to
materiality thresholds contained therein).
12.2 Defense of Claims.
(a) Each party seeking indemnification hereunder (an "Indemnitee"):
(i) shall provide the other party or parties (the "Indemnitor") written notice
of any claim or action by a third party for which an Indemnitor may be liable
under the terms of this Agreement, within ten (10) days after such claim or
action arises and is known to Indemnitee, and (ii) shall give the Indemnitor a
reasonable opportunity to participate in any proceedings and to settle or defend
any such claim or action. The expenses of all proceedings, contests or lawsuits
with respect to such claims or actions shall be borne by the Indemnitor. If the
Indemnitor wishes to assume the defense of such claim or action, the Indemnitor
shall give written notice to the Indemnitee within ten (10) days after notice
from the Indemnitee of such claim or action, and the Indemnitor shall thereafter
assume the defense of any such claim or liability, through counsel reasonably
satisfactory to the Indemnitee, provided that Indemnitee may participate in such
defense at their own expense, and the Indemnitor shall, in any event, have the
right to control the defense of the claim or action. The failure of an
Indemnitee to give any notice required by this Section shall not affect any of
such party's rights under this Section or otherwise, except and to the extent
that such failure is actually prejudicial to the rights or obligations of the
Indemnitor.
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(b) If the Indemnitor shall not assume the defense of, or if after
so assuming it shall fail to defend, any such claim or action, the Indemnitee
may defend against any such claim or action in such manner as they may deem
appropriate and the Indemnitees may settle such claim or litigation on such
terms as they may deem appropriate but subject to the Indemnitor's approval,
such approval not to be unreasonably withheld; provided, however, that any such
settlement shall be deemed approved by the Indemnitor if the Indemnitor fails to
object thereto, by written notice to the Indemnitee, within fifteen (15) days
after the Indemnitor's receipt of a written summary of such settlement. The
Indemnitor shall promptly reimburse the Indemnitee for the amount of all
expenses, legal and otherwise, incurred by the Indemnitee in connection with the
defense and settlement of such claim or action.
(c) If a non-appealable judgment is rendered against any Indemnitee
in any action covered by the indemnification hereunder, or any lien attaches to
any of the assets of any of the Indemnitee, the Indemnitor shall immediately
upon such entry or attachment pay such judgment in full or discharge such lien
unless, at the expense and direction of the Indemnitor, an appeal is taken under
which the execution of the judgment or satisfaction of the lien is stayed. If
and when a final judgment is rendered in any such action, the Indemnitor shall
forthwith pay such judgment or discharge such lien before any Indemnitee is
compelled to do so.
12.3 Waiver. The failure of any Indemnitee to give any notice or to take
any action hereunder shall not be deemed a waiver of any of the rights of such
Indemnitee hereunder, except to the extent that Indemnitor is actually
prejudiced by such failure.
13. TERMINATION.
13.1 Termination. This Agreement may be terminated at any time on or
prior to the Closing:
(a) By mutual consent of the Buyers and the Company; or
(b) At the election of the Buyers if: (i) a Company has breached or
failed to perform or comply with any of its representations, warranties,
covenants or obligations under this Agreement; or (ii) any of the conditions
precedent set forth in Section 3, 4, 7, 8 or 9 is not satisfied as and when
required by this Agreement; or (iii) the Closing has not been consummated by
within five (5) business days from the date hereof; or
(c) At the election of the Company if: (i) the Buyers have breached
or failed to perform or comply with any of its representations, warranties,
covenants or obligations under this Agreement; or (ii) any of the conditions
precedent set forth in Section 7, 8, or 9 is not satisfied as and when required
by this Agreement; or (iii) the Closing has not been consummated by within five
(5) business days from the date hereof.
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13.2 Manner and Effect of Termination. Written notice of any termination
("Termination Notice") pursuant to this Section 13 shall be given by the party
electing termination of this Agreement ("Terminating Party") to the other party
or parties (collectively, the "Terminated Party"), and such notice shall state
the reason for termination. The party or parties receiving Termination Notice
shall have a period of ten (10) days after receipt of Termination Notice to cure
the matters giving rise to such termination to the reasonable satisfaction of
the Terminating Party. If the matters giving rise to termination are not cured
as required hereby, this Agreement shall be terminated effective as of the close
of business on the tenth (10th) day following the Terminated Party's receipt of
Termination Notice. Upon termination of this Agreement prior to the consummation
of the Closing and in accordance with the terms hereof, this Agreement shall
become void and of no effect, and none of the parties shall have any liability
to the others, except that nothing contained herein shall relieve any party
from: (a) its obligations under Sections 3.2 and 3.3; or (b) liability for its
intentional breach of any representation, warranty or covenant contained herein,
or its intentional failure to comply with the terms and conditions of this
Agreement or to perform its obligations hereunder.
14. MISCELLANEOUS.
14.1 Notices.
(a) All notices, requests, demands, or other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given upon receipt if delivered in person, or upon the expiration of two (2)
days after the date sent, if sent by federal express (or similar overnight
courier service) to the parties at the following addresses:
If to the Company, to: Neomedia Technologies Inc.
0000 0xx Xxxxx - Xxxxx 000
Xxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyers, to their address and facsimile numbers on Schedule I,
with copies to each Buyers' counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(b) Notices may also be given in any other manner permitted by law,
effective upon actual receipt. Any party may change the address to which
notices, requests, demands or other communications to such party shall be
delivered or mailed by giving notice thereof to the other parties hereto in the
manner provided herein.
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14.2 Survival. The representations, warranties, agreements and
indemnifications of the parties contained in this Agreement or in any writing
delivered pursuant to the provisions of this Agreement shall survive any
investigation heretofore or hereafter made by the parties and the consummation
of the transactions contemplated herein and shall continue in full force and
effect after the Closing.
14.3 Counterparts; Interpretation. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same instrument. This Agreement supersedes
all prior discussions and agreements between the parties with respect to the
subject matter hereof, and this Agreement contains the sole and entire agreement
among the parties with respect to the matters covered hereby. All Schedules
hereto shall be deemed a part of this Agreement. This Agreement shall not be
altered or amended except by an instrument in writing signed by or on behalf of
all of the parties hereto. No ambiguity in any provision hereof shall be
construed against a party by reason of the fact it was drafted by such party or
its counsel. For purposes of this Agreement: "herein", "hereby", "hereunder",
"herewith", "hereafter" and "hereinafter" refer to this Agreement in its
entirety, and not to any particular subsection or paragraph. References to
"including" means including without limiting the generality of any description
preceding such term. Nothing expressed or implied in this Agreement is intended,
or shall be construed, to confer upon or give any person other than the parties
hereto any rights or remedies under or by reason of this Agreement.
14.4 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard exclusively in Xxxxxx County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Xxxxxx County, New Jersey and the United States District
Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any
civil action asserted pursuant to this paragraph. Each party hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action in the forum selected
hereby.
14.5 Successors and Assigns; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, and successors; provided, however, that
the Company may not assign this Agreement or any rights hereunder, in whole or
in part.
14.6 Partial Invalidity and Severability. All rights and restrictions
contained herein may be exercised and shall be applicable and binding only to
the extent that they do not violate any applicable laws and are intended to be
limited to the extent necessary to render this Agreement legal, valid and
enforceable. If any terms of this Agreement not essential to the commercial
purpose of this Agreement shall be held to be illegal, invalid or unenforceable
by a court of competent jurisdiction, it is the intention of the parties that
the remaining terms hereof shall constitute their agreement with respect to the
subject matter hereof and all such remaining terms shall remain in full force
and effect. To the extent legally permissible, any illegal, invalid or
unenforceable provision of this Agreement shall be replaced by a valid provision
which will implement the commercial purpose of the illegal, invalid or
unenforceable provision.
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14.7 Waiver. Any term or condition of this Agreement may be waived at any
time by the party which is entitled to the benefit thereof, but only if such
waiver is evidenced by a writing signed by such party. No failure on the part of
a party hereto to exercise, and no delay in exercising, any right, power or
remedy created hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or remedy by any such party
preclude any other future exercise thereof or the exercise of any other right,
power or remedy. No waiver by any party hereto to any breach of or default in
any term or condition of this Agreement shall constitute a waiver of or assent
to any succeeding breach of or default in the same or any other term or
condition hereof.
14.8 Headings. The headings as to contents of particular paragraphs of
this Agreement are inserted for convenience only and shall not be construed as a
part of this Agreement or as a limitation on the scope of any terms or
provisions of this Agreement.
14.9 Expenses.
(a) Structuring Fees. The Company shall pay a structuring fee to
Yorkville Advisors, LLC of Twenty Five Thousand Dollars ($25,000), which shall
be paid directly from the proceeds held in escrow for the Closing.
(b) Fees and Expenses. Each of the Company and the Buyers shall pay
all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement and all related documents to this transaction. The Company shall pay
Yorkville Advisors LLC a fee equal to Two Million Seven Hundred Thousand Dollars
($2,700,000) which shall be paid directly from the proceeds held in escrow for
the Closing.
(c) The Company shall issue also issue to the Buyer a warrant to
purchase twenty million (20,000,000) shares of the Company's Common Stock (the
"Buyers "A" Warrant") exercisable for a period of five (5) years at an exercise
price of Fifty Cents ($0.50) per share. Furthermore the Company shall also issue
to the Buyer a warrant to purchase twenty five million (25,000,000) shares of
the Company's Common Stock (the "Buyers "B" Warrant") exercisable for a period
of five (5) years at an exercise price of Forty Cents ($0.40) per share.
Furthermore, the Company shall also issue to the Buyer a warrant to purchase
thirty million (30,000,000) shares of the Company's Common Stock (the "Buyers
"C" Warrant") exercisable for a period of five (5) years at an exercise price of
Thirty-Five Cents ($0.35) per share. (The Buyers "A" Warrant, the Buyers "B"
Warrant and the Buyers "C" Warrant are collectively referred to as the "Buyers'
Warrants.") The shares of the Company's Common Stock issuable upon exercise of
the Buyers Warrant shall have "piggy-back" and demand registration rights.
14.10 Finder's Fees. The Buyers represent to the Company that no broker,
agent, finder or other party has been retained by it in connection with the
transactions contemplated hereby and that no other fee or commission have been
agreed to by the Buyers to be paid for or on account of the transactions
contemplated hereby. The Company represents to the Buyers that no broker, agent,
finder or other party has been retained by the Company in connection with the
transactions contemplated hereby and that no other fee or commission has been
agreed by the Company to be paid for or on account of the transactions
contemplated hereby.
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14.11 Gender. Where the context requires, the use of the singular form
herein shall include the plural, the use of the plural shall include the
singular, and the use of any gender shall include any and all genders.
14.12 Currency. All foreign currency amounts required to be converted to
U.S. Dollars for purposes of this Agreement shall be converted in accordance
with GAAP.
14.13 Acceptance by Fax. This Agreement shall be accepted, effective and
binding, for all purposes, when the parties shall have signed and transmitted to
each other, by telecopier or otherwise, copies of the signature pages hereto.
14.14 Attorneys Fees. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provision of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
court costs and all expenses (including, without limitation, all such fees,
costs and expenses incident to appellate, bankruptcy, post-judgment and
alternative dispute resolution proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party may be entitled.
14.15 NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Investment Agreement or
caused this Investment Agreement to be duly executed by their duly authorized
officers as of the day and year first above written.
COMPANY:
NEOMEDIA TECHNOLOGIES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President & Chief Executive Officer
CORNELL CAPITAL PARTNERS, L.P.
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx X. Xxxxxx
------------------------------------------
Name: Xxxx X. Xxxxxx
Its: President and Portfolio Manager
- 25 -
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES C PREFERRED SHARES
- 26 -
EXHIBIT B
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
- 27 -
EXHIBIT C
FORM OF ESCROW AGREEMENT
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EXHIBIT D
FORM IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
- 29 -
EXHIBIT E
ASSIGNMENT OF OTHER SECUIRITES
Break Down of Consideration: $ 18,791,298
Assignment of Certain Promissory Notes $1,611,231.78
Assignment of Certain Shares of Common Stock $ 388,768.22
Wire Transfer of Immediately Available Funds $ 16,791,298
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SCHEDULE I
SCHEDULE OF BUYERS
--------------------------------------------- ---------------------------------------- -------------------------------
ADDRESS/FACSIMILE AMOUNT OF
NAME NUMBER OF BUYERS SUBSCRIPTION
--------------------------------------------- ---------------------------------------- -------------------------------
Cornell Capital Partners, LP 000 Xxxxxx Xxxxxx Xxxxx 0000 $27,000,000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
With a copy to 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
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