EXHIBIT 10.3
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
AMEDIA NETWORKS, INC.
AND
DOUBLE U MASTER FUND L.P.
Dated as of
August 9, 2004
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THIS PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 9th day
of August, 2004 (this "AGREEMENT"), by and between DOUBLE U MASTER FUND L.P., a
limited partnership organized and existing under the laws of British Virgin
Islands ("INVESTOR"), and AMEDIA NETWORKS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to Six Million
Dollars ($6,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933, Regulation D ,
and the rules and regulations promulgated thereunder (the "SECURITIES ACT"),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS as used in this Agreement, the following terms
shall have the following meanings specified or indicated (such meanings to be
equally applicable to both the singular and plural forms of the terms defined)
"AGREEMENT" shall have the meaning specified in the preamble hereof.
"BID PRICE" shall mean the Closing Bid Price as reported by Bloomberg,
L.P.
"BLACKOUT NOTICE" shall have the meaning specified in the Registration
Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in Section 2.6
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning specified in Section 9.3(a).
"CLOSING" shall mean one of the closings of a purchase and sale of
shares of Common Stock pursuant to Section 2.3.
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"CLOSING DATE" shall mean, with respect to a Closing, the sixth (6th)
Day following the Put Date related to such Closing, or such earlier date as the
Company and Investor shall agree, provided all conditions to such Closing have
been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the Effective
Date, and ending on the earlier of (i) the date on which Investor shall have
purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price
of the Maximum Commitment Amount, (ii) the date this Agreement is terminated
pursuant to Section 2.5, or (iii) the date occurring twenty four (24) months
from the date of commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, $.001par value per
share, and any shares of any other class of common stock whether now or
hereafter authorized, having the right to participate in the distribution of
dividends (as and when declared) and assets (upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are
convertible into or exchangeable for Common Stock or any options or other rights
to subscribe for or purchase Common Stock or any such convertible or
exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in
Section 7.2.
"DAMAGES" shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
"DISCLOSURE LETTER" means a letter and any modifications thereof, the
latest of which is dated at least two Trading Days prior to the Initial Closing
Date, from the Company to the Investor; provided, however, that the Disclosure
Letter shall be arranged in sections corresponding to the identified Sections of
this Agreement, but the disclosure in any such section of the Disclosure Letter
shall qualify other provisions in this Agreement to the extent that it would be
readily apparent to an informed reader from a reading of such section of the
Disclosure Letter that it is also relevant to other provisions of this
Agreement.
"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).
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"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering resale of the Registrable
Securities as set forth in Section 7.2(a).
"ESCROW AGENT" shall mean ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP.
"EXCHANGE ACT" shall mean the Securities Exchange Act of1934 and the
rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"FLOOR PRICE" shall have the meaning specified in Section 2.1
"INDEMNIFIED PARTY" shall have the meaning specified in Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section 9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).
"INVESTMENT AMOUNT" shall mean the dollar amount (within the range
specified in Section 2.2) to be invested by Investor to purchase Put Shares with
respect to any Put Date as notified by the Company to Investor in accordance
with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the lowest VWAP for any
three (3) Trading Days during the five (5) trading day period immediately
following the Put Date.
"MAXIMUM COMMITMENT AMOUNT" shall mean Six Million Dollars ($6,000,000).
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, or financial condition of the Company that is material
and adverse to the Company and/or any condition, circumstance, or situation that
would prohibit or otherwise materially interfere with the ability of the Company
to enter into and perform its obligations under any of (a) this Agreement and
(b) the Registration Rights Agreement.
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"MAXIMUM MONTHLY PUT AMOUNT" shall mean a maximum of Five Hundred
Thousand Dollars ($500,000) in Put Notices during any thirty (30) day calendar
period.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, the lesser of
(a) $125,000.00, or (b) Two Hundred Fifty (250%) percent of the Weighted Average
Volume for the twenty (20) trading days immediately preceding each Put Date.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Fifty Thousand
Dollars ($50,000). "NASD" shall mean the National Association of Securities
Dealers, Inc.
"NEW BID PRICE" shall have the meaning specified in Section2.6.
"OLD BID PRICE" shall have the meaning specified in Section2.6.
"OUTSTANDING" shall mean, with respect to the Common Stock, at any date
as of which the number of shares of Common Stock is to be determined, all issued
and outstanding shares of Common Stock, including all shares of Common Stock
issuable in respect of outstanding convertible securities, scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, an association,
a trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq
SmallCap Market, the Over the Counter Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
"PURCHASE PRICE" shall mean, with respect to a Put, 98% of the Market
Price on the applicable Put Date (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this Agreement).
"PUT" shall mean the right of the Company to require Investor to
purchase shares of Common Stock, subject to the terms and conditions of this
Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment Period that
a Put Notice is deemed delivered pursuant to Section 2.2(b).
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"PUT NOTICE" shall mean a written notice, substantially in the form of
Exhibit B hereto, to Investor setting forth the Investment Amount with respect
to which the Company intends to require Investor to purchase shares of Common
Stock pursuant to the terms of this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued or issuable
pursuant to a Put that has been exercised or may be exercised in accordance with
the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b) the Blackout
Shares and (c) any securities issued or issuable with respect to any of the
foregoing by way of exchange, stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
Registration Statement has been declared effective by the SEC and such
Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration rights
agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate
and which form shall be available for the resale of the Registrable Securities
to be registered thereunder in accordance with the provisions of this Agreement
and the Registration Rights Agreement and in accordance with the intended method
of distribution of such securities), for the registration of the resale by
Investor of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the recitals of this
Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or any similar
provision then in force under the Securities Act.
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"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals of this
Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals of
this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and
other documents file by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since the beginning of the Company's then most recently completed
fiscal year as of the time in question (provided that if the date in question is
within ninety days of the beginning of the Company's fiscal year, the term shall
include all documents filed since the beginning of the second preceding fiscal
year).
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is
executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in Section 9.3(a).
"TRADING CUSHION" shall mean a minimum of five (5) Trading Days between
a Closing Date and the subsequent Put Dates.
"TRADING DAY" shall mean any day during which the Principal Market shall
be open for business.
"TRANSACTION DOCUMENTS" means the Private Equity Credit Agreement, the
Registration Rights Agreement, Closing Certificate, and the Transfer Agent
Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and
to any substitute or replacement transfer agent for the Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to a
Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company at any time
during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
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(b) pays a dividend in shares of Common Stock or makes any
other distribution of shares of Common Stock, except for dividends paid with
respect to any series of preferred stock authorized by the Company, whether now
existing or in the future;
(c) issues any options or other rights to subscribe for or
purchase shares of Common Stock and the price per share for which shares of
Common Stock may at any time thereafter be issuable pursuant to such options or
other rights shall be less than the Bid Price in effect immediately prior to
such issuance;
(d) issues any securities convertible into or exchangeable
for shares of Common Stock and the consideration per share for which shares of
Common Stock may at any time thereafter be issuable pursuant to the terms of
such convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than as provided
in the foregoing subsections (a) through (d), at a price per share less, or for
other consideration lower, than the BID PRICE in effect immediately prior to
such issuance, or without consideration; or
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in liquidation or by
way of return of capital or other than as a dividend payable out of earnings or
surplus legally available for dividends under applicable law or any distribution
to such holders made in respect of the sale of all or substantially all of the
Company's assets (other than under the circumstances provided for in the
foregoing subsections (a) through (e).
"VALUATION PERIOD" shall mean the period of five (5) Trading Days
immediately following the date on which the applicable Put Notice is deemed to
be delivered and during which the Purchase Price of the Common Stock is valued;
provided, however, that if a Valuation Event occurs during any Valuation Period,
a new Valuation Period shall begin on the Trading Day immediately after the
occurrence of such Valuation Event and end on the fifth (5th) Trading Day
thereafter.
"VWAP" shall mean the daily Volume Weighted Average Price as reported by
Bloomberg L.P.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the Weighted Volume
for the relevant days.
"WEIGHTED VOLUME" shall mean the product of (a) the Closing Bid Price
times (b) the volume on the Principal Market.
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ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII), on any Put Date
the Company may exercise a Put by the delivery of a Put Notice. The number of
Put Shares that Investor shall purchase pursuant to such Put shall be determined
by dividing the Investment Amount specified in the Put Notice by the Purchase
Price with respect to such Put Date.
(b) As a condition for the execution of this Agreement by
the Investor, the Company shall, within three (3) business days from the date
hereof, warrants to purchase up to 333,333 shares of common Stock for a period
of five years at an exercise price of $2.00. The shares underlying the warrants
shall be included for registration in the Registration Statement.
(c) FLOOR PRICE . The Company may specify in each such Put
Notice a Floor Price; provided however that the Purchase Price shall at all
times exceed $2.00 ("Minimum Floor Price"). In the event that during a Valuation
Period , the VWAP on a Trading Day is below the Floor Price or Minimum Floor
Price, the Investor shall be under no obligation to fund one-fifth of the Put
Amount for each such Trading Day and the Put Amount shall be adjusted
accordingly. In the event that during a Valuation Period , the VWAP on any three
(3) Trading Days - not necessarily consecutive -is below the Floor Price , the
balance of the Investor's obligation for the Put Amount under such put shall
terminate on the last of such Trading Days and the Put Amount shall be adjusted
accordingly.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time and from time to time during the
Commitment Period, the Company may deliver a Put Notice to Investor, subject to
the Trading Cushion and the conditions set forth in Section 7.2; provided,
however, the Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than the Minimum Put Amount nor more
than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by Investor if such notice is received on or prior to 12:00 noon New York time,
or (ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon New York time on a Trading Day or at anytime on a day
which is not a Trading Day.
Section 2.3 CLOSINGS. On or prior to each Closing Date for a Put, (a)
the Company shall deliver to Escrow Agent one or more certificates, at
Investor's option, representing the Put Shares to be purchased by Investor
pursuant to Section 2.1 herein, registered in the name of Investor and (b)
Investor shall deliver to the Escrow Agent the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to an account
designated by the Escrow Agent on or before the Closing Date. In lieu of
delivering physical certificates representing the Common Stock issuable in
accordance with clause (a) of this Section 2.3, and provided that the Transfer
Agent then is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of Investor, but
subject to the applicable provisions of Article VIII hereof, the Company shall
use its commercially reasonable efforts to cause the Transfer Agent to
electronically transmit, prior to the Closing Date, the Put Shares by crediting
the account of the holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system, and provide proof satisfactory to the Escrow
Agent of such delivery. In addition, on or prior to such Closing Date, each of
the Company and Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. On the Closing Date and provided all
conditions to Closing have been satisfied by the Company, the Escrow Agent shall
deliver to the Company by wire transfer of immediately available funds , the
Investment Amount, less any applicable fees and expenses.]
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Section 2.4 [INTENTIONALLY OMITTED]
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The obligation of
Investor pursuant to this Agreement to purchase shares of Common Stock shall, at
Investor's option, terminate permanently (including with respect to a Closing
Date that has not yet occurred) in the event that (a) there shall occur any stop
order or suspension of the effectiveness of any Registration Statement for
thirty (30) consecutive Trading Days during the Commitment Period, for any
reason other than deferrals or suspension during a Blackout Period in accordance
with the Registration Rights Agreement, as a result of corporate developments
subsequent to the date hereof that would require such Registration Statement to
be amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act; (b) such obligation is terminated
by the Investor as provided in Section 2 (b) of the Registration Rights
Agreement or (c) the Company shall at any time fail to comply with the
requirements of Section 6.3, 6.4, or 6.6 and such failure shall continue for
more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within fifteen (15)
Trading Days following any Closing Date, the Company delivers a Blackout Notice
to Investor in accordance with the Registration Rights Agreement, and (b) the
VWAP on the Trading Day immediately preceding the applicable Blackout Period
("OLD BID PRICE") is greater than the VWAP on the first Trading Day following
such Blackout Period that Investor may sell its Registrable Securities pursuant
to an effective Registration Statement ("NEW BID PRICE"), then the Company shall
issue to Investor the number of additional shares of Registrable Securities (the
"BLACKOUT SHARES") equal to the difference between (i) the product of the number
of Put Shares held by Investor immediately prior to the Blackout Period that
were issued on the most recent Closing Date(the "REMAINING PUT SHARES")
multiplied by the Old Bid Price, divided by the New Bid Price, and (ii) the
Remaining Put Shares.
Section 2.7 [INTENTIONALLY LEFT BLANK]
Section 2.8 LIQUIDATED DAMAGES. Each of the Company and Investor
acknowledge and agree that the requirement to issue Blackout Shares under
Section 2.6 shall give rise to liquidated damages and not penalties. Each of the
Company and Investor further acknowledge that (a) the amount of loss or damages
likely to be incurred is incapable or is difficult to precisely estimate, (b)
the amounts specified in such Sections bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be incurred
by Investor in connection with the failure by the Company to make Puts with
aggregate Purchase Prices totaling at least the Minimum Commitment Amount or in
connection with a Blackout Period under the Registration Rights Agreement, and
(c) each of the Company and Investor are sophisticated business parties and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its own
account and Investor has no present arrangement (whether or not legally binding)
at any time to sell the Common Stock to or through any person or entity;
provided, however, Investor reserves the right to dispose of the Common Stock at
any time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. NO LEGAL ADVICE FROM THE COMPANY. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 3.3 SOPHISTICATED INVESTOR. Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
Section 3.4 AUTHORITY. (a) Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement and the
transactions contemplated hereby in accordance with its terms; (b) the execution
and delivery of this Agreement and the Registration Rights Agreement, and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action and no further consent or authorization
of Investor or its partners is required; and (c) each of this Agreement and the
Registration Rights Agreement has been duly authorized and validly executed and
delivered by Investor and constitute valid and binding obligations of Investor
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Section 3.5 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.6 ORGANIZATION AND STANDING. Investor is a limited partnership
duly organized, validly existing and in good standing under the laws of the
British Virgin Islands, and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
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Section 3.7 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, and compliance
with the requirements hereof and thereof, will not (a) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investor, (b) violate any provision of any indenture, instrument or agreement to
which Investor is a party or is subject, or by which Investor or any of its
assets is bound, or conflict with or constitute a material default thereunder,
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party, or (d) require the approval
of any third-party (that has not been obtained) pursuant to any material
contract, instrument, agreement, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Section 3.8 DISCLOSURE; ACCESS TO INFORMATION. Investor has received and
read in their entirety all documents, records, books and other information
pertaining to Investor's investment in the Company that has been requested by
Investor. Investor has received and reviewed copies of the SEC Documents. The
Investor has received answers to all questions the Investor submitted to the
Company regarding an investment in the Company.
Section 3.9 MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.10 FINANCIAL CAPABILITY. Investor presently has the financial
capacity and the necessary capital to perform its obligations hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that, except as
disclosed in the SEC Documents or in the Disclosure Letter:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company does not own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares and the Blackout
Shares, if any; (b) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (c) each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
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Section 4.3 CAPITALIZATION. As of August 8, 2004, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common Stock, $.001
par value per share, of which approximately 16,440,630 are outstanding as of the
date hereof, and (ii) 5,000,000 shares of Preferred Stock, $.001 par value, of
which none have been designated prior to the filing of the Certificate of
Designations.
Except as otherwise disclosed in the SEC Documents or the Disclosure
Letter, there are no outstanding securities which are convertible into shares of
Common Stock, whether such conversion is currently exercisable or exercisable
only upon some future date or the occurrence of some event in the future. If any
such securities are listed on the Disclosure Letter, the number or amount of
each such outstanding convertible security and the conversion terms are set
forth in said Disclosure Letter.
All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of the Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date of this Agreement, the Principal Market is the OTC
Bulletin Board.
Section 4.5 SEC DOCUMENTS. The Company made available to Investor true
and complete copies of the SEC Documents (including, without limitation, proxy
information and solicitation materials). To the Company's knowledge, the Company
has not provided to Investor any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be otherwise
indicated in such financial statements or the notes thereto or (b) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
13
Section 4.6 VALID ISSUANCES. When issued and paid for as herein
provided, the Put Shares, and the Blackout Shares, if any, shall be duly and
validly issued, fully paid, and nonassessable. Neither the sales of the Put
Shares or the Blackout Shares, if any, pursuant to, nor the Company's
performance of its obligations under, this Agreement or the Registration Rights
Agreement shall (a) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares or the Blackout Shares, if any,
or any of the assets of the Company, or (b) entitle the holders of Outstanding
Common Stock to preemptive or other rights to subscribe to or acquire the Common
Stock or other securities of the Company. The Put Shares and the Blackout
Shares, if any, shall not subject Investor to personal liability, in excess of
the subscription price by reason of the ownership thereof.]
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf has conducted or will conduct any general solicitation
(as that term is used in Rule 502(c) of Regulation D) or general advertising in
connection with the offer and sale of shares of Common Stock offered hereby .
Section 4.9 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares and the Blackout Shares, if any, do not and will not (a) result
in a violation of the Certificate or By-Laws or (b) conflict with, or constitute
a material default (or an event that with notice or lapse of time or both would
become a material default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (c) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations)applicable to the
Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate do not and will not have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock
in accordance with the terms hereof (other than any SEC, NASD or state
securities filings that may be required to be made by the Company subsequent to
any Closing, any registration statement that may be filed pursuant hereto, and
any shareholder approval required by the rules applicable to companies whose
common stock trades on the Over The Counter Bulletin Board); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 2003, no
event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since December
31, 2003 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
14
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2003, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
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 in the SEC Documents.
Section 4.13 [INTENTIONALLY LEFT BLANK]
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may beset forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to Investor, any
material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the Common Stock
or(b) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW; TRADING IN SECURITIES. Investor's
trading activities with respect to shares of the Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and the rules and regulations of the NASD and the Principal Market
on which the Common stock is listed or quoted..
Section 5.2 TRADING IN SECURITIES. The Company specifically acknowledges
that, except to the extent specifically provided herein or in any of the other
Transaction Agreements (but limited in each instance to the extent so
specified), the Investor retains the right (but is not otherwise obligated) to
buy, sell, engage in hedging transactions or otherwise trade in the securities
of the Company, including, but not necessarily limited to, the Securities, at
any time before, contemporaneous with or after the execution of this Agreement
or from time to time and in any manner whatsoever permitted by applicable
federal and state securities laws.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
15
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, 6,455,782 shares of Common Stock for the
purpose of enabling the Company to satisfy any obligation to issue the Put
Shares and the Blackout Shares, if any. The number of shares so reserved from
time to time, as theretofore increased or reduced as hereinafter provided, may
be reduced by the number of shares actually delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK. If the Company applies to have the
Common Stock traded on any other Principal Market, it shall include in such
application the Put Shares and the Blackout Shares, if any, and shall take such
other action as is necessary or desirable in the reasonable opinion of Investor
to cause the Common Stock to be listed on such other Principal Market as
promptly as possible. The Company shall use its commercially reasonable efforts
to continue the listing and trading of the Common Stock on the Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all
commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said act, and will not take any action or
file any document (whether or not permitted by said act or the rules
thereunder)to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put Shares and the
Blackout Shares, if any, shall be free of legends, except as provided for in
Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
the Company.
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to
Investor, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO MAKE A PUT. The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (a)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
16
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify Investor
as to its reasonable expectations as to the dollar amount it intends to raise
during such calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying Investor at
any time as to its reasonable expectations with respect to the current calendar
quarter.
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to Investor
such shares of Common Stock and/or securities as Investor is entitled to receive
pursuant to this Agreement.
Section 6.11 REIMBURSEMENT. If (i) Investor, other than by reason of its
gross negligence or willful misconduct, 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 the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, 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, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this section 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 Investor that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor 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, Investor and any such affiliate and
any such person.
Section 6.12 DILUTION. The number of shares of Common Stock issuable as
Put Shares may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines during the period between the Effective Date and the end
of the Commitment Period. The Company's executive officers and directors have
studied and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have 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 Put Shares 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.
Section 6.13 USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Common Stock) for internal
working capital purposes.
17
Section 6.14 CERTAIN AGREEMENTS. (a) (i) The Company covenants and
agrees that it will not, without the prior written consent of the Investor,
enter into any subsequent or further offer or sale of Common Stock or Common
Stock Equivalents (collectively, "New Common Stock") with any third party
pursuant to a transaction which in any manner permits the sale of the New Common
Stock on any date which is thirty (30) days prior or subsequent to any Put Date,
at a price per share less than the Purchase Price on such Put Date.
(ii) The provisions of subparagraph 6.15(i) will not
apply to (w) an underwritten public offering of shares of Common Stock or
Preferred Stock; or (x) shares of Common Stock or the issuance of options to
purchase shares of Common Stock to employees, officer, directors, consultants
and vendors in accordance with the Company's equity incentive policies, (y) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding prior to the date hereof, or (z)
the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition or the exchange
of the capital stock for assets, stock or other joint venture interests.
(b) (i) The Company covenants and agrees that it will
not, without the prior written consent of the Investor and subject to paragraph
(ii) below, enter into any subsequent or further equity line agreement similar
to this Agreement (howeverever denominated) with any third party during the
Commitment Period.
(ii) If the Company determine to enter into
subsequent or further Credit Line Agreement (however denominated) with any third
party during the Commitment Period , it shall deliver to the Investor a Notice
which shall describe, in reasonable detail, without limitation, all of the terms
and conditions thereof. The Notice shall provide Investor an option (the "Rights
Option") during the ten (10) business day period following delivery of the
Notice (the "Option Period") to execute a further Credit Line Agreement on the
same terms and conditions as contemplated by such Notice. If the Investor does
not respond in writing to the Company during such period, then the Company may
enter into such agreement with such third party.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue
and sell the Put Shares to Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time, except for changes which have not
had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER
A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of
the Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
18
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As
set forth in the Registration Rights Agreement, the Company shall have filed
with the SEC the Initial Registration Statement with respect to the resale of
the Registrable Securities by Investor and such Registration Statement shall
have been declared effective by the SEC prior to the first Put Date. For the
purposes of any Put Notice with respect to the Registrable Securities other than
the Initial Registrable Securities, the Company shall have filed with the SEC a
Registration Statement with respect to the resale of such Registrable Securities
by Investor which shall have been declared effective by the SEC prior to the Put
Date therefore.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the
Registration Rights Agreement, a Registration Statement shall have previously
become effective for the resale by Investor of the Registrable Securities
subject to such Put Notice and such Registration Statement shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
Investor shall have received notice that the SEC has issued or intends to issue
a stop order with respect to such Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of such Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such
action),and (ii) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits or directly and materially adversely affects any of
the transactions contemplated by this Agreement, and no proceeding shall have
been commenced that may have the effect of prohibiting or materially adversely
affecting any of the transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely to
have a Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market.
(h) LEGAL OPINION. The Company shall have caused to be
delivered to Investor, within five (5) Trading Days of the effective date of the
Initial Registration Statement and each subsequent Registration Statement, an
opinion of the Company's legal counsel in the form of Exhibit C hereto,
addressed to Investor.
19
(i) [INTENTIONALLY OMITTED]
(j) [INTENTIONALLY OMITTED]
(k) [INTENTIONALLY OMITTED]
(l) NO KNOWLEDGE. The Company shall have no knowledge of any
event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed
since the immediately preceding Put Date, and the Put Amount shall not exceed
the Maximum Monthly Put Amount.
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(o) NO VALUATION EVENT. No Valuation Event shall have
occurred since the Put Date.
(p) OTHER. On each Condition Satisfaction Date, Investor
shall have received a certificate in substantially the form and substance of
Exhibit D hereto, executed by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been satisfied as at
the date of each such certificate.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. 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, or until
such Shares can otherwise be sold without restriction, whichever is earlier,
each certificate representing Registrable Securities will bear the following
legend (the "LEGEND"):
The securities represented by this certificate have not been registered
under the Securities Act of 1933 (the "Securities Act") 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. As soon as practicable after the
execution and delivery hereof, the Company warrants that it will give
the Transfer Agent no instructions inconsistent with the provisions
hereof. It is the intent and purpose of such instructions, as provided
therein, to require the Transfer Agent to issue to Investor certificates
evidencing shares of Common Stock incident to a Closing, free of the
Legend; provided that (a) a Registration Statement shall then be
effective, (b) Investor confirms to the Transfer Agent and the Company
that it has sold or intends to sell such Common Stock, to a third party
which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to
the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (c) Investor confirms to the transfer agent and the
Company that Investor has complied, or will comply with the prospectus
delivery requirement under the Securities Act.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock.
20
Section 8.3 COVER. If the Company fails for any reason to deliver the
Put Shares on such Closing Date and the holder of the Put Shares (a "Investor")
purchases, in an open market transaction or otherwise, shares of Common Stock
(the "Covering Shares") in order to make delivery in satisfaction of a sale of
Common Stock by such Investor (the "Sold Shares"), which delivery such Investor
anticipated to make using the Put Shares (a "Buy-In"), then the Company shall
pay to such Investor, in addition to all other amounts contemplated in other
provisions of the Transaction Documents, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) such Investor's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by such Investor
from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment
Amount to such Investor in immediately available funds immediately upon demand
by such Investor. By way of illustration and not in limitation of the foregoing,
if such Investor purchases Covering Shares having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock that it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount that the Company will be required to pay to such Investor will
be $1,000.
Section 8.4 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall
affect in any way Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (a) personally
served,(b) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (c) delivered by reputable air courier service with
charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice given in accordance herewith. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (i) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (ii) on the second
business day following the date of mailing by express courier service or on the
fifth business day after deposited in the mail, in each case, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
21
If to the Company:
Amedia Networks
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇▇.▇▇▇.▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇ ▇▇▇▇▇▇
Aboudi & ▇▇▇▇▇▇▇▇▇▇
3 Gavish Street
Kfar ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
ph: 972-9-764-4833
fax: ▇▇▇-▇-▇▇▇-▇▇▇▇
if to Investor:
Double U Master Fund L.P.
Beacon Capital Fund
Harbour House, Waterfront drive
P.O. Box 972
Road Town, Tortola
British Virgin Islands
with a copy to:
▇▇▇▇▇▇▇ & Prager, LLP
▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION.
The Company agrees to indemnify and hold harmless Investor and its
officers, directors, employees, and agents, and each Person or entity, if any,
who controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling 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 Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
officer's, director's, employee's, agent's or Controlling Person's negligence,
recklessness or bad faith in performing its obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:
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(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.2 (an
"INDEMNIFIED PARTY") might seek indemnity under Section 9.2 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 Section 9.2 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 Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.(i)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 Section 9.3(a),
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 Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to 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
clause (i), 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 takeover the control of
the defense or settlement of a Third Party Claim at any time if it irrevocably
waives its right to indemnity under Section 9.2 with respect to such Third Party
Claim. (ii) 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 Section 9.3(a), 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; 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 clause (ii), 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 clause(iii) below, the Indemnifying
Party will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
clause (ii), and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation. (iii) 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
Section 9.2 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 Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
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(b) In the event any Indemnified Party should have a claim
under Section 9.2 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 Section 9.2 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 Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.
(c) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar rights of the Indemnified Party
against the Indemnifying Party or others, and (ii)any liabilities the
Indemnifying Party may be subject to.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of New York
without regard to the principles of conflicts of law. Each of the Company and
Investor hereby submit to the exclusive jurisdiction of the United States
Federal and state courts located in New York county, New York with respect to
any dispute arising under this Agreement, the agreements entered into in
connection herewith or the transactions contemplated hereby or thereby.
Section 10.2 JURY TRIAL WAIVER. The Company and the Investor 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 of or in connection with the Transaction Documents.
Section 10.3 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person without
the prior written consent of the other party.
Section 10.4 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
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Section 10.5 TERMINATION; PRIOR AGREEMENTS TERMINATED. This Agreement
shall terminate at the end of Commitment Period or as otherwise provided herein
(unless extended by the agreement of the Company and Investor); provided,
however, that the provisions of Article VI, VIII, and Sections 9.2,10.1, 10.2
and 10.4 shall survive the termination of this Agreement.
Section 10.6 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and
the instruments referenced herein contain the entire understanding of the
Company and Investor with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
Section 10.7 FEES AND EXPENSES. Each of the Company and Investor agrees
to pay its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder, except that the Company shall pay
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, upon execution hereof, a fee of $20,000 for this
transaction, and customary escrow fees. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Investor in connection with any
amendments, modifications or waivers of this Agreement or the Registration
Rights Agreement or incurred in connection with the enforcement of this
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 10.8 NO BROKERS. Each of the Company and Investor represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other party,
except B&W Equities LLC, who shall receive a fee equal to five percent (5%) of
each Put Amount from escrow. The Company, agrees to indemnify the Investor
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 10.9 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the Company and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 10.10 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the Company hereto shall survive each Closing
hereunder for a period of one (1) year thereafter. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.
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Section 10.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.12 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 10.13 EQUITABLE RELIEF. The Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to
Investor. The Company therefore agrees that Investor shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
Section 10.14 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.15 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg L.P. or any successor thereto. The written mutual consent of Investor
and the Company shall be required to employ any other reporting entity.
Section 10.16 PUBLICITY. The Company and Investor shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Investor without the prior written consent of such Investor, except to the
extent required by law. Investor acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the Exchange Act.
Investor further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
AMEDIA NETWORKS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
DOUBLE U MASTER FUND L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇
Title: Director
Navigator Management Ltd.
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