Exhibit 10.6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
February 27, 2004, is entered into by and between MOBILE REACH INTERNATIONAL,
INC., a Delaware corporation with headquarters located at 0000 Xxxxxxx Xxxxxxx,
Xxxxx 000, Xxxx, Xxxxx Xxxxxxxx 00000 (the "Company"), and each individual or
entity named on a signature page hereto (as used herein, each such signatory is
referred to as the "Lender") (each agreement with a Lender being deemed a
separate and independent agreement between the Company and such Lender, except
that each Lender acknowledges and consents to the rights granted to each other
Lender [each, an "Other Lender"] 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 Lender are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration for offers and sales to accredited investors afforded,
inter alia, by Rule 506 under Regulation D ("Regulation D") as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) and/or
Section 4(6) of the 1933 Act; and
WHEREAS, the Lender 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 Lender's Purchase Price amount set forth on the Lender's
signature page hereto, the repayment of which will be represented by 5%
Convertible Debentures Series 04-01 of the Company (the "Convertible
Debentures"), which Convertible Debentures will be convertible into shares of
Common Stock, $.0001 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. Subject to the terms and conditions of this Agreement
and the other Transaction Agreements, the undersigned hereby agrees to loan to
the Company the principal amount set forth on the Lender's signature page of
this Agreement (the "Purchase Price"), out of the aggregate amount being loaned
by all Lenders of $525,000 (the "Total Purchase Price"). The obligation to repay
the loan from the Lender shall be evidenced by the Company's issuance of one or
more Convertible Debentures to the Lender in such principal amount (the
Convertible Debentures issued to the Lender, the "Debentures"). Each Debenture
(i) shall provide for a conversion price (the
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"Conversion Price"), which shall initially be the Fixed Conversion Price (as
defined below), which price may be adjusted from time to 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. The loan to be made by the Lender and
the issuance of the Debentures to the Lender are sometimes referred to herein
and in the other Transaction Agreements as the purchase and sale of the
Debentures and the Warrants (collectively, the "Purchased Securities").
b. Certain Definitions. As used herein, each of the following terms
has the meaning set forth below, unless the context otherwise requires:
"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.
"Certificates" means the Debentures and the Warrants, each duly
executed by the Company and issued on the Closing Date in the name of the
Lender.
"Closing Date" means the date of the closing of the purchase and
sale of the Purchased Securities, as provided herein.
"Closing Price" shall mean the 4:00 P.M. closing bid price of the
Common Stock on the Principal Trading Market on the relevant Trading Day(s).
"Company Control Person" means each director, executive officer,
promoter, and such other Persons as may currently be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act
(as defined below).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Debentures (including, if relevant, accrued interest on the
Debentures so converted).
"Effective Date" means the date the Registration Statement covering
the Registrable Securities is declared effective by the SEC.
"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 exercise price per share of the Warrants,
as in effect at the relevant time.
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"Finder" means vFinance Investments, Inc.
"Fixed Conversion Price" means $0.16 (as that amount may be adjusted
as provided in the Debenture).
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Last Audited Date" means July 31, 2003.
"Lender Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Lender
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"Majority in Interest of the Holders" means one or more Holders
whose respective Purchase Prices aggregate more than fifty percent (50%) of the
Total Purchase Price.
"Material Adverse Effect" means an event or combination of events,
which individually or in the aggregate, would reasonably be expected to (w)
adversely affect the legality, validity or enforceability of the Securities or
any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, or condition (financial or
otherwise) of the Company and its subsidiaries, taken as a whole, (y) 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, or (z) materially and adversely affect the value of the
rights granted to the Lender in the Transaction Agreements.
"Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
"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, but shall not include the "pink sheets."
"Registrable Securities" shall have the meaning ascribed to it in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form annexed hereto as Annex IV as executed by the Lender 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
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reputation selected by a Majority in Interest of the Holders and reasonably
acceptable to the Company.
"Securities" means the Debentures, the Warrants and the Shares.
"Shares" means the shares of Common Stock representing any or all of
the Conversion Shares and the Warrant Shares or any of the other Registrable
Securities.
"State of Incorporation" means Delaware.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transaction Agreements" means this Agreement, the Debenture, the
Registration Rights Agreement, the Joint Escrow Instructions, 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.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
c. Form of Payment; Delivery of Certificates.
(i) The Lender shall pay the Purchase Price by delivering
immediately available good funds in United States Dollars to the Escrow Agent no
later than the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event promptly
following payment by one or more Lenders to the Escrow Agent of the Total
Purchase Price, the Company shall deliver the Certificates to the Escrow Agent.
(iii) By signing this Agreement, each of the Lender and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. Method of Payment. Payment into escrow of the Purchase Price
shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
4 2/19/04
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx LLP
Account No.: [To be provided to the Lender by
Xxxxxxx & Prager LLP]
Re: Mobile Reach 04 Transaction/[Name of Lender]
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Lender represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Lender's right to sell the Securities pursuant
to an effective registration statement or otherwise in compliance with the 1933
Act, the Lender 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. The
Lender currently has no arrangement to sell any of the Convertible Debentures,
Warrants, Conversion Shares or Warrant Shares at any time to or through any
Person.
b. The Lender is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and to evaluate the merits and risks of an investment in
the Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Securities by the Lender
shall be made pursuant to registration of the relevant Securities under the 1933
Act or pursuant to an exemption from registration.
d. The Lender 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 Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
e. The Lender and its advisors, if any, have been furnished with or
have been given access to all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Lender, including those set forth on
in any annex attached hereto. The Lender and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management and
have
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received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Lender has also had the
opportunity to obtain and to review the Company's filings on XXXXX listed on
Annex VII hereto (the documents listed on such Annex VII, to the extent
available on XXXXX or otherwise provided to the Lender as indicated on said
Annex VII, collectively, the "Company's SEC Documents").
f. The Lender understands that its investment in the Securities
involves a high degree of risk.
g. The Lender hereby represents that, in connection with its
purchase of the Securities, it has not relied on any statement or representation
by the Company or the Finder or any of their respective officers, directors and
employees or any of their respective attorneys or agents or the Finder, except
as specifically set forth herein. The Finder is a third party beneficiary of
this provision.
h. The Lender 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
Lender is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Lender and are valid
and binding agreements of the Lender 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.
j. At no time was the Lender presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising. The Lender is not an officer,
director or affiliate (as defined in Rule 405 of the 0000 Xxx) of the Company.
k. The execution and delivery of this Agreement and each of the
other Transaction Agreements to which the Lender is a party, the purchase of the
Securities and the consummation by the Lender of the other transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by the Lender of any of the terms or provisions of, or constitute a
default under (i) if the Lender is an entity, the certificate of incorporation,
by-laws, operating agreement or other organizational or governance documents of
the Lender, each as currently in effect, or (ii) 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 Lender, except
such conflict, breach or default which would not materially affect Lender's
participation in such transactions.
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3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants
to the Lender as of the Closing Date that, except as otherwise provided in Annex
VI hereto or in the Company's SEC Documents:
a. Rights of Others Affecting the Transactions. There are no
preemptive rights of any shareholder of the Company, as such, to acquire the
Securities. No party other has a currently exercisable right of first refusal
which would be applicable to any or all of the transactions contemplated by the
Transaction Agreements.
b. Status. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is quoted on the Principal Trading Market. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such quotation on the Principal
Trading Market, and the Company has maintained all requirements on its part for
the continuation of such quotation.
c. Authorized Shares. The authorized capital stock of the Company
consists of (i) 50,000,000 shares of Common Stock, $.0001 par value per share,
of which approximately 25,369,554 shares are outstanding as of the date hereof,
and (ii) 10,000,000 shares of Preferred Xxxxx, x.0000 par value, of which none
are outstanding as of the date hereof. 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. As of the
Closing Date, the Shares shall have been duly authorized by all necessary
corporate action on the part of the Company, and, when issued on the conversion
of, or as interest on, the Debentures in accordance with their terms or upon
exercise of the Warrants in accordance with their terms, will be 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. As of the date
hereof and as of Closing Date, the Company has not issued any warrants or other
rights to acquire shares of the Common Stock other than those referred to in the
Company's SEC Documents
d. Transaction Agreements and Stock. This Agreement and each of the
other Transaction Agreements, and the transactions contemplated thereby, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Debentures,
the Warrants and each of the other Transaction Agreements, when executed and
delivered by the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability
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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 Lender 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 July 1, 2003, the Company has timely filed all
requisite forms, reports and exhibits thereto required to be filed by the
Company with the SEC.
h. Absence of Certain Changes. Since the Last Audited Date, there
has been no Material Adverse Effect, except as disclosed in the Company's SEC
Documents. Since the Last Audited Date, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), in excess of $100,000, other than current liabilities
paid in the ordinary course of business consistent with past practices; (iii)
declared or made any payment or distribution of cash or other property to
shareholders with respect to its capital stock, or purchased or redeemed, or
made any agreements to purchase or redeem, any shares of its capital stock; (iv)
sold, assigned or transferred any other tangible assets, or canceled any debts
owed to the Company by any third party or claims of the Company against any
third party, in excess of $100,000, 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
8 2/19/04
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
i. Full Disclosure. To the best of the Company's knowledge, there is
no fact known to the Company (other than general economic conditions known to
the public generally or as disclosed in the Company's SEC Documents) that has
not been disclosed in writing to the Lender that would reasonably be expected to
have or result in a Material Adverse Effect.
j. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
before or by any governmental authority or nongovernmental department,
commission, board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of the
Transaction Agreements. 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, but without independent investigation or inquiry by the
Company, none of the following has occurred during the past five (5) years with
respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such
Company Control Person, or any partnership in which he was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer
at or within two years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding or
is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction,
9 2/19/04
permanently or temporarily enjoining him from, or otherwise limiting, the
following activities:
(i) acting, as an investment advisor, underwriter, broker or dealer
in securities, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or
insurance company, as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, any other Person regulated by the Commodity Futures Trading
Commission ("CFTC") or engaging in or continuing any conduct or
practice in connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities
laws;
(4) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for more than 60
days the right of such Company Control Person to engage in any activity
described in paragraph (3) of this item, or to be associated with Persons
engaged in any such activity; or
(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended,
or vacated.
m. No Undisclosed Liabilities or Events. To the best of the
Company's knowledge, the Company has no liabilities or obligations other than
those disclosed in the Transaction Agreements or the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since the Last
Audited Date, or which individually or in the aggregate, do not or would not
have a Material Adverse Effect. No event or 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.
10 2/19/04
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 July 1, 2003, 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 and upon exercise of the Warrants may have a dilutive effect on the
ownership interests of the other shareholders (and Persons having the right to
become shareholders) of the Company. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have such a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Conversion
Shares upon conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants 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 executed and delivered as contemplated by the
Debentures and every Notice of Exercise executed and delivered as contemplated
by the Warrants, unless the Company is subject to an injunction (which
injunction was not sought by the Company) prohibiting the Company from doing so.
p. Fees to Brokers, Finders and Others. Except for payment of the
fees to the Finder's Compensation (as defined below) to the Finder, payment of
which is the sole responsibility of the Company, the Company has taken no action
which would give rise to any claim by any Person for brokerage commission,
finder's fees or similar payments by Lender relating to this Agreement or the
transactions contemplated hereby. Lender 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 Lender, 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 "Finder's Compensation" means, in connection with the
consummation of the transactions contemplated by this Agreement, the
consideration payable to the Finder contemplated by the Joint Escrow
Instructions.
q. Confirmation. The Company confirms that all statements of the
Company contained herein shall survive acceptance of this Agreement by the
Lender. The Company agrees that, if any events occur or circumstances exist
prior to the Closing Date or the release of the Purchase Price to the Company
which would make any of the Company's representations, warranties, agreements or
other information set forth herein materially untrue or materially inaccurate as
of such date, the Company shall immediately notify the Lender (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.
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4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Lender acknowledges that (i) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Lender 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; (ii) 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 (iii) 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. The
Lender's trading activities with respect to any shares of the Company's Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and the all applicable rules and regulations of the
Principal Trading Market; provided, however, that unless and until the Company
has affirmatively demonstrated by the use of specific evidence that the Lender
has breached the foregoing provisions of this sentence, the Buyer shall be
assumed to be in compliance with such provisions and the Company shall remain
obligated to fulfill all of its obligations under the Transaction Agreements;
and provided, further, that the Company shall under no circumstances be entitled
to request or demand that the Lender affirmatively demonstrate that it is in
compliance with such provisions as a condition to the Company's fulfillment of
its obligations under any of the Transaction Agreements and shall not assert the
Lender's failure to demonstrate such compliance or the absence of a breach of
such compliance as a defense to any breach of the Company's obligations under
any of the Transaction Agreements.
b. Restrictive Legend. The Lender acknowledges and agrees that,
until such time as the relevant Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement, and sold in accordance
with an effective Registration Statement or otherwise in accordance with another
effective registration statement, the Certificates and other instruments
representing any of the Securities shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
12 2/19/04
c. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Lender 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
Lender promptly after such filing.
d. Reporting Status. So long as the Lender beneficially owns any of
the Securities, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable
action under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it at least through the date which is sixty (60) days after the
later of the date on which (x) all of the Debentures have been converted or been
paid in full or (y) all of the Warrants have been exercised or have expired.
e. Use of Proceeds. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for Finder's Compensation in
connection with the sale of the Securities or legal and escrow fees contemplated
by the Joint Escrow Instructions) for general corporate and working capital
purposes and to satisfy or reduce the amounts of current liabilities of the
Company.
f. Warrants. The Company agrees to issue to the Lender on the
Closing Date transferable warrants (the "Warrants") for the purchase of 29,750
shares of Common Stock for each 100,000 Issue Date Conversion Shares (as defined
below). The exercise price of the Warrants will be equal to $0.32, subject to
adjustment as provided in the Warrant. The Warrants will expire on the last day
of the calendar month in which the second anniversary of the Closing Date
occurs. Each of the Warrants shall be in the form annexed hereto as Annex V. The
Warrant Shares shall be subject to the provisions of the Registration Rights
Agreement. The term "Issue Date Conversion Shares" means the number of shares of
Common Stock equal to (x) the Purchase Price paid by the Lender on the Closing
Date, divided by (y) $0.16.
g. Certain Agreements.
(i) If during the period (the "New Transaction Period") from the
Closing Date and continuing through and including the Final Lock-up Date (as
defined below), without the prior written consent of a Majority in Interest of
the Holders in each instance, the Company enters into any subsequent or further
offer or sale of Common Stock or securities convertible into and/or other rights
exercisable for the issuance of Common Stock (collectively, "New Common Stock")
to or
13 2/19/04
with any third party (any such offer or sale of New Common Stock, a "New
Transaction"), the following provisions of this Section 4(g) shall apply. The
term "Final Lock-up Date" means the date which is ninety (90) days after the
Effective Date, but not counting for such purposes the days, if any, during
which sale of Registrable Securities was suspended after the Effective Date.(1)
(ii) In the event there is a New Transaction where the New
Transaction Price is less than the Threshold Price (as those terms are defined
below) or if the New Transaction Exercise Price (as defined below) is less than
the then applicable Exercise Price of the Warrants, then
(A) the Conversion Price on any Unconverted Debenture (as defined in the
Debenture) shall be adjusted to an amount (the "Adjusted Conversion
Price") equal to the lower of (1) the Adjustment Percentage (as defined
below) of the then existing Conversion Price, or (2) eighty percent (80%)
of the New Transaction Price;
(B) the number of shares which may be purchased by the unexercised
Warrants shall be adjusted to equal (i) the fraction, of which the
numerator is the number of unexercised Warrant Shares and the denominator
is the number of Warrant Shares originally contemplated by this Agreement,
multiplied by (ii) the highest of
(1) the number of Warrant Shares originally contemplated by this
Agreement,
(2) the number of shares equal to twenty-nine and 75/100 percent
(29.75%) of (I) the Purchase Price divided by (II) the lower of (a)
the Closing Price for the Trading Day immediately preceding the
initial closing date of the New Transaction or (b) the Adjusted
Conversion Price, or
(3) the number of shares equal to the Alternative Warrant Percentage
(as defined below) of (I) the Purchase Price divided by (II) the
lower of (a) the Closing Price for the Trading Day immediately
preceding the initial closing date of the New Transaction or (b) the
Adjusted Conversion Price; and
(C) the Exercise Price on the Warrants shall be adjusted to equal the
lowest of (1) the then existing Exercise Price, or (2) two hundred percent
(200%) of the Adjusted Conversion Price.
----------
(1) By way of illustration: If the sale of Registrable Securities was suspended
for ten (10) days in the interim, the applicable Final Lock-up Date will be one
hundred (100) days after the Effective Date. If on the 98th day after the
Effective Date, the sale of Registrable Securities was suspended again for five
(5) days, the Final Lock-up Date will be one hundred ninety-five (105) days
after the Effective Date.
14 2/19/04
(iii) With respect to any New Transaction, whether or not the New
Transaction Price is not less than the Threshold Price,
(A) if the provisions of the preferred stock, 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 of the Debenture,(2) or if the terms which are beneficial to the
Company in the Debentures (as provided in the Debenture or in any of the
other Transaction Agreements) are not included in the corresponding
instrument in the New Transaction (howsoever denominated), then, unless
waived by the Holder, the terms applicable to the Debentures shall be
modified to reflect similar terms (based on the original issue date of the
Debenture); and
(B) if the provisions of the warrant, option or similar instrument
(howsoever denominated), if any, of the New Transaction are more
beneficial to the holder of such instrument than the corresponding terms
of the Warrant,(3) or if the terms which are beneficial to the Company as
provided in the Warrant are not included in the corresponding instrument
in the New Transaction, then, unless waived by the Holder, the Warrant
terms shall be modified to reflect similar terms (based on the original
issue date of the Warrants).
(iv) For purposes of this Agreement, the following terms shall have
meanings indicated:
(A) "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 which would be applicable under the terms of the New
Transaction.
(B) "New Transaction Exercise Price" means the lowest exercise price per
share applicable to warrants or other rights issued in the New
Transaction.
(C) "Alternative Warrant Percentage" means (1) the number of shares which
are eligible to be purchased under the warrant, option or other right
(howsoever denominated) issued in the New Transaction ("New Transaction
Warrants"), divided by (2) 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).
----------
(2) Without limiting the foregoing, by way of example: the dividend rate or the
interest rate, as the case may be, of the instrument in the New Transaction is
more than the interest rate of the Debentures as in effect at the time (after
taking into account any prior adjustments thereto).
(3) Without limiting the foregoing, by way of example: the expiration date of
the instrument in the New Transaction is more than two years from its original
issue date.
15 2/19/04
(D) "Threshold Price" means, per share, $0.15, subject to equitable
adjustment for stock splits, stock dividends, reclassifications,
recapitalizations and the like effected after the date of this Agreement.
(E) "Adjustment Percentage" means, with respect to each New Transaction
which is subject to the provisions of Section 4(g)(ii), (1) ninety percent
(90%) for the first such New Transaction; (2) eighty percent (80%) for the
second such New Transaction; and (3) seventy percent (70%) for each
subsequent such New Transaction.
(v) Anything herein to the contrary notwithstanding, the Company
shall not be required to make any adjustment of any Conversion Price or the
Exercise Price under any Warrant or make any other adjustments whatsoever under
this Section 4(g) in the case of (A) the issuance or sale of shares of Common
Stock upon exercise of stock options or warrants outstanding on the date hereof,
(B) the sale of shares of Common Stock, or the issuance of options to purchase
shares of the Company's Common Stock, or any combination thereof, to employees,
officers, directors and/or consultants of the Corporation pursuant to a Stock
Option Plan which was duly approved prior to the date of this Agreement, (C) the
issuance of Common Stock upon conversion of the Debentures or exercise of the
Warrants, (D) the issuance of shares or other securities underlying any
warrants, options or other securities convertible into or exercisable for shares
of the Company's Common Stock if the original issuance of such warrants, options
or other securities was made in compliance with this Section 4(g), (E) the
issuance of securities issued pursuant to any stock dividend, stock split,
combination or other reclassification by the Company of any of its capital
stock, or (F) the issuance of securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets or other reorganization, provided, however, that the shares so issued can
not, by the terms of the relevant agreements, be included in a registration
statement filed prior to the Final Lock-up Date. Anything in the preceding
provisions of this Section 4(g) to the contrary notwithstanding, if, but only
if, an issuance or sale complies fully with the relevant provision or provisions
of the preceding clauses (A) through (F) of this subparagraph (v), such issuance
or sale (x) shall not be deemed in any respect to be a New Transaction, and, (y)
accordingly, the provisions of Section 4(g)(ii) and (iii) shall not be applied
with respect to such issuance or sale
(vi) Nothing in the foregoing provisions reflects either an
obligation on the part of any Lender to participate in any New Transaction or a
limitation on any Lender from participating in any New Transaction.
(vii) Notwithstanding any consent obtained from any Holder and any
of the foregoing provisions of this Section 4(g) 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.
h. Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, a number of shares (the
"Minimum Available
16 2/19/04
Shares") at least equal to (x) one hundred twenty-five percent (125%) of the
number of shares of Common Stock issuable as may be required to satisfy the
conversion rights of the Holders of principal on all outstanding Debentures plus
(y) one hundred ten percent (110%) of the number of shares issuable upon
exercise of all outstanding Warrants held by all Holders (in each case, whether
such Debentures or Warrants were originally issued to the Holder, the Lender or
to any other party). For the purposes of such calculations, the Company should
assume that all Convertible Debentures for the Total Purchase Price were then
issued and convertible and all related Warrants were then issued and
exercisable, in each case without regard to any restrictions (including
restrictions as to date or amount) which might limit any Holder's right to
convert any of the Convertible Debentures or to exercise any of the Warrants
held by any Holder.
i. Publicity, Filings, Releases, Etc. Except for disclosures
required by law, rule or regulation, each of the parties agrees that it will not
disseminate any information relating to the Transaction Agreements or the
transactions contemplated thereby, including issuing any press releases, holding
any press conferences or other forums, or filing any reports (collectively,
"Publicity"), without giving the other party reasonable advance notice and an
opportunity to comment on the contents thereof. Except for disclosures required
by law, rule or regulation, neither party will include in any such Publicity any
statement or statements or other material to which the other party reasonably
objects. Notwithstanding the foregoing, each of the parties hereby consents to
the inclusion of the text of the Transaction Agreements in filings made with the
SEC (but any descriptive text accompanying or part of such filing shall be
subject to the other provisions of this paragraph).
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities, other
than the stop transfer instructions to give effect to Section 4(a) hereof, it
will give the Transfer Agent no instructions inconsistent with instructions to
issue Common Stock from time to time upon conversion of the Debentures 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
Lender or its nominee and in such denominations to be specified by the Holder in
connection with each conversion of the Debentures. 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
Lender's obligations and agreement to comply with all applicable securities laws
upon resale of the Securities. If the Lender provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Lender of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required under the 1933 Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the
Conversion Shares or of the Warrant Shares, promptly instruct the Transfer Agent
to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Lender.
17 2/19/04
b. Subject to the provisions of this Agreement, the Company will
permit the Lender to exercise its right to convert the Debenture in the manner
contemplated by the Debenture and to exercise the Warrants in the manner
contemplated by the Warrants.
c. (i) The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date (as defined in the Debenture)
could result in economic loss to the Lender. As compensation to the Lender for
such loss, the Company agrees to pay late payments to the Lender for late
issuance of Shares upon conversion in accordance with the following schedule
(where "No. Business Days Late" refers to the number of business days which is
beyond two (2) business days after the Delivery Date):(4)
Late Payment For Each $10,000
of Principal or Interest
No. Business Days Late Being Converted
---------------------- -----------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand as the Lender's exclusive remedy (other than the
following provisions of this Section 5(c) and the provisions of the immediately
following Section 5(d) of this Agreement) for such delay. Furthermore, in
addition to any other remedies which may be available to the Lender, in the
event that the Company fails for any reason to effect delivery of such shares of
Common Stock by close of business on the Delivery Date, the Lender will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company, whereupon the Company and the Lender shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion; provided, however, that an amount equal to any payments
contemplated by this Section 5(c) which have accrued through the date of such
revocation notice shall remain due and
----------
(4) Example: Notice of Conversion is delivered on Monday, March 1, 2004. The
Delivery Date would be Thursday, March 4 (the third business day after such
delivery). If the certificate is delivered by Monday, March 8 (2 business days
after the Delivery Date), no payment under this provision is due. If the
certificates are delivered on March 9, that is 1 "Business Day Late" in the
table below; if delivered on December 16, that is 6 "Business Days Late" in the
table.
18 2/19/04
owing to the Converting Holder notwithstanding such revocation. The provisions
of this Section 5(c)(i) shall not apply if the Holder elects to have the remedy
provided in Section 5(c)(ii), if applicable, apply.
(ii) If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of a Debenture and
after such Delivery Date, the Holder of the Debentures being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
lieu of, but no in addition, of the amounts due under Section 5(c)(i) hereof
(but in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), 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 Converting 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 Converting Holder from the
sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to
the Converting Holder in immediately available funds immediately upon demand by
the Converting Holder. By way of illustration and not in limitation of the
foregoing, if the Converting 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 Converting Holder will be $1,000.
(iii) The Company specifically acknowledges and agrees that the
determination of which provision under Section 5(c)(i) or Section 5(c)(ii) shall
apply is in the sole and absolute discretion of the Holder.
d. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause the Transfer Agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system. If the request for the issuance of the Conversion Shares in this manner
(the "DTC Request") is given subsequent to the issuance of the Notice of
Conversion, the Delivery Date referred to in Section 4(c) and (d) above shall be
determined as if the date of the DTC Request were the Conversion Date.
19 2/19/04
e. The holder of any Debenture shall be entitled to exercise its
conversion privilege with respect to the Debenture notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362 in respect of the conversion of the Debenture.
The Company agrees, without cost or expense to such holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
f. The Company will authorize the Transfer Agent to give information
relating to the Company directly to the Lender or the Lender's representatives
upon the request of the Lender 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 Lender in connection with a Notice of Conversion or
a Notice of Exercise, or (ii) the number of outstanding shares of Common Stock
of all shareholders as of a current or other specified date. At the request of
the Lender, the Company will provide the Lender with a copy of the authorization
so given to the Transfer Agent.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first
Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
b. The closing of the purchase and issuance of Purchased Securities
shall occur on the Closing Date at the offices of the Escrow Agent and shall
take place on such day or such other time as is mutually agreed upon by the
Company and the Finder.
c. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized and directed to release the Escrow Funds to the
Company and to others and to release the other Escrow Property on the 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 Lender understands that the Company's obligation to sell the
Purchased Securities to the Lender pursuant to this Agreement on the Closing
Date is conditioned upon:
a. The execution and delivery by the Lender of this Agreement and
the other Transaction Agreements to which the Lender is a signatory on or before
the Closing Date;
b. Delivery by the Lender to the Escrow Agent by the Closing Date of
good funds as payment in full of an amount equal to the Purchase Price and the
delivery by the Other Lenders, if any, by the Closing Date of good funds in
payment in full of an amount equal to the balance of the Total Purchase Price,
all in accordance with this Agreement;
20 2/19/04
c. The accuracy on such Closing Date of the representations and
warranties of the Lender contained in this Agreement, each as if made on such
date, and the performance by the Lender on or before such date of all covenants
and agreements of the Lender required to be performed on or before such date;
d. On such Closing Date, each of the Transaction Agreements executed
by the Lender on or before such date shall be in full force and effect, and the
Lender shall not in default thereunder; and
e. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to purchase the
Purchased Securities on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before the Closing Date;
b. Delivery by the Company to the Escrow Agent of the relevant
Certificates in accordance with this Agreement;
c. 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;
d. 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;
e. On such Closing Date, the Lender shall have received an opinion
of counsel for the Company, dated such Closing Date, in form, scope and
substance reasonably satisfactory to the Lender, substantially to the effect set
forth in Annex III attached hereto;
f. 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
g. From and after the date hereof to and including the 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
21 2/19/04
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 that, in the reasonable judgment of the Lender, makes it
impracticable or inadvisable to purchase the Securities.
9. INDEMNIFICATION.
a. (i) The Company agrees to indemnify and hold harmless the Lender
and its officers, directors, employees, and agents, and each Lender 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 Lender, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Lender 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 Lender's failure to perform any covenant or agreement contained in this
Agreement or the Lender's or its officer's, director's, employee's, agent's or
Lender Control Person's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Lender (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 Lender 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 Lender from and against and in respect of all
losses, claims, liabilities, damages or expenses resulting from, imposed upon or
incurred by the Lender, directly or indirectly, and reimburse such Lender for
its reasonable legal and other expenses (including the cost of any investigation
and preparation) incurred in connection therewith, as such expenses are
incurred. In addition, the Company will reimburse the Lender for reasonable
internal and overhead costs for the time of any officers or employees of the
Lender devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or otherwise with respect
to inquiries, hearing, trials, and other proceedings relating to the subject
matter of this Agreement or the other Transaction Agreements. 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
Lender who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Lender Control Persons (if any), as
the case may be, of
22 2/19/04
the Lender 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 Lender, any such Affiliate and any such Person. The Company also
agrees that neither the Lender nor any such Affiliate, partner, director, agent,
employee or Lender Control Person shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of this Agreement or the other
Transaction Agreements, except as may be expressly and specifically provided in
or contemplated by this Agreement.
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which any
Person claiming indemnification under any provision of this Section (an
"Indemnified Party") might seek indemnity under paragraph (a) of this Section is
asserted against or sought to be collected from such Indemnified Party by a
Person other than a party hereto or an Affiliate thereof (a "Third Party
Claim"), the Indemnified Party shall deliver a written notification, enclosing a
copy of all papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for indemnification
that is being asserted under any provision of this Section against any Person
(the "Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
paragraph (b) of this Section, then the Indemnifying Party shall have the
right to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying Party
(but only with the consent of the Indemnified Party in the case of any
settlement that provides for any relief other than the payment of monetary
damages or that provides for the payment of monetary damages as to which
the Indemnified Party shall not be indemnified in full pursuant to
paragraph (a) of this Section). The Indemnifying
23 2/19/04
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the Indemnified Party
may, at the sole cost and expense of the Indemnified Party, at any time prior to
the Indemnifying Party's delivery of the notice referred to in the first
sentence of this subparagraph (x), file any motion, answer or other pleadings or
take any other action that the Indemnified Party reasonably believes to be
necessary or appropriate protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this subparagraph (x), and except as provided in
the preceding sentence, the Indemnified Party shall bear its own costs and
expenses with respect to such participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under paragraph (a) of this Section with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Third Party
Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party 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, subject to the provisions of the
previous sentence; 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
24 2/19/04
such litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
subparagraph (y), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party that it does
not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under paragraph
(a) of this Section or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability or
the amount of its liability to the Indemnified Party with respect to such
Third Party Claim, the amount of Damages specified in the Claim Notice
shall be conclusively deemed a liability of the Indemnifying Party under
paragraph (a) of this Section and the Indemnifying Party shall pay the
amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of
such dispute; provided, however, that it the dispute is not resolved
within thirty (30) days after the Claim Notice, the Indemnifying Party
shall be enlisted 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 it the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be enlisted 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.
25 2/19/04
10. JURY TRIAL WAIVER. The Company and the Lender hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York 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 New York
or the state courts of the State of New York sitting in the County of New York
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 Lender for any
reasonable legal fees and disbursements incurred by the Lender 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. Notwithstanding the
foregoing, no party hereto may assign this Agreement or any of its rights or
delegate any of its obligations hereunder without the prior written consent of
the other party.
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.
26 2/19/04
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.
12. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the fifth business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail,
properly addressed to the recipient thereof, or
(c) the third business day after mailing by domestic or
international express courier, with delivery costs and fees prepaid,
properly addressed to the recipient thereof,
in each case, properly 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: Xxxxxxx Xxxxxx, CEO
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxxxx, Esq.
Xxxxxx Xxxxxxx Xxxxx & Xxxxxx LLP
0000 Xxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
LENDER: At the address set forth on the signature page of this
Agreement.
27 2/19/04
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
ESCROW AGENT: Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and
the Lender's representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Certificates and the
payment of the Purchase Price, and shall inure to the benefit of the Lender and
the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
28 2/19/04
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Lender (if an entity, by one of its officers thereunto duly authorized) as of
the date set forth below.
PURCHASE PRICE: $________________________
SIGNATURES FOR LENDERS
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Agreement to be duly
executed on its behalf this ______________ day of _______________________, 2004.
________________________________ _____________________________________
Address Printed Name of Lender
________________________________
By: _________________________________
Telecopier No._________________ (Signature of Authorized Person)
_____________________________________
______________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
The undersigned hereby accepts this Agreement and represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of the date first above written.
MOBILE REACH INTERNATIONAL, INC.
By: __________________________
Title: __________________________
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V FORM OF WARRANT
ANNEX VI COMPANY DISCLOSURE MATERIAL
ANNEX VII COMPANY'S SEC DOCUMENTS AVAILABLE ON XXXXX
2/19/04
