UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest reported): 11-12-04
Multiband Corporation
----------------------------------------------------
(Exact name of registrant as specified in its chapter)
Minnesota 13529 41-1255001
---------------------------- ---------------------- ------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
9449 Science Center Drive
New Hope, Minnesota 55428
--------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 763-504-3000
------------
-------------------------------------------------------
(Former name or former address, if changed since last report)
Item 2.03 Creation of a Direct Financial Obligation
Item 3.02 Unregistered Sale of Equity Securities
On November 12, 2004 Multiband Corporation entered into a Note Purchase
Agreement and other related agreements with a number of accredited institutional
investors. The full terms and conditions of said agreements are attached hereto.
In Summary, under the terms of the debt offering, the company issued secured
convertible promissory notes in the aggregate principal amount of $[2,100,000].
The convertible notes accrue interest at the rate of 6% per annum, payable
semi-annually at the option of the company in cash or shares of the company's
common stock, and are convertible into shares of common stock at the rate of
$1.00 per share. The company also is required to file a registration statement
providing for the resale of the shares issuable upon the conversion of the
notes.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Form 8-K report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: 11-19-04 Multiband Corporation
By: /s/ James L. Mandel
-------------------------
James L. Mandel
Chief Executive Officer
2
Exhibit Index
Multiband Corporation - Note Purchase Agreement
Multiband Corporation - Form of Convertible Promissory Note
Multiband Corporation - Registration Rights Agreement for Notes
Multiband Corporation - Security Agreement
Multiband Corporation - Press Release
3
NOTE PURCHASE AGREEMENT
DATED AS OF NOVEMBER _, 2004
AMONG
MULTIBAND CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of Notes................................................................................1
Section 1.1 Purchase and Sale of Notes...............................................................1
Section 1.2 The Conversion Shares....................................................................1
Section 1.3 Purchase Price and Closing...............................................................1
ARTICLE II Representations and Warranties...........................................................................2
Section 2.1 Representations and Warranties of the Company............................................2
Section 2.2 Representations and Warranties of the Purchasers........................................12
ARTICLE III Covenants..............................................................................................14
Section 3.1 Securities Compliance...................................................................14
Section 3.2 Registration and Listing................................................................14
Section 3.3 Inspection Rights.......................................................................14
Section 3.4 Compliance with Laws....................................................................15
Section 3.5 Keeping of Records and Books of Account.................................................15
Section 3.6 Reporting Requirements..................................................................15
Section 3.7 Amendments..............................................................................15
Section 3.8 Other Agreements........................................................................16
Section 3.9 Distributions...........................................................................16
Section 3.10 Status of Dividends.....................................................................16
Section 3.11 Use of Proceeds.........................................................................16
Section 3.12 Future Financings; Right of First Offer and Refusal.....................................16
Section 3.13 Reservation of Shares...................................................................18
Section 3.14 Transfer Agent Instructions.............................................................18
Section 3.15 Disposition of Assets...................................................................19
Section 3.16 Reporting Status........................................................................19
Section 3.17 Disclosure of Transaction ..............................................................19
Section 3.18 Disclosure of Material Information......................................................19
Section 3.19 Pledge of Securities....................................................................19
Section 3.20 Stockholder Approval....................................................................20
Section 3.21 Acquisition Indebtedness................................................................20
i
ARTICLE IV Conditions..............................................................................................19
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Notes.................19
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Notes..........20
ARTICLE V Stock Certificate Legend.................................................................................22
Section 5.1 Legend..................................................................................22
ARTICLE VI Indemnification.........................................................................................23
Section 6.1 General Indemnity.......................................................................23
Section 6.2 Indemnification Procedure...............................................................23
ARTICLE VII Miscellaneous..........................................................................................24
Section 7.1 Fees and Expenses.......................................................................25
Section 7.2 Specific Enforcement, Consent to Jurisdiction...........................................25
Section 7.3 Entire Agreement; Amendment.............................................................26
Section 7.4 Notices.................................................................................26
Section 7.5 Waivers.................................................................................27
Section 7.6 Headings................................................................................27
Section 7.7 Successors and Assigns..................................................................27
Section 7.8 No Third Party Beneficiaries............................................................27
Section 7.9 Governing Law...........................................................................27
Section 7.10 Waiver of Jury Trial....................................................................27
Section 7.11 Survival................................................................................27
Section 7.12 Counterparts............................................................................27
Section 7.13 Publicity...............................................................................29
Section 7.14 Severability............................................................................29
Section 7.15 Further Assurances......................................................................29
ii
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of
November _, 2004 by and among Multiband Corporation, a Minnesota corporation
(the "Company"), and each of the Purchasers of the secured convertible
promissory notes of the Company whose names are set forth on Exhibit A hereto
(individually, a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES
Section 1.1 Purchase and Sale of Notes. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, secured convertible promissory notes
in the form attached hereto as Exhibit B (the "Notes"), accruing interest at a
rate of six percent (6%) per annum, convertible into shares of the Company's
Common Stock, no par value per share (the "Common Stock"). The aggregate
purchase price for the Notes shall be up to $2,166,667. The Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded by Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act") or Section 4(2) of the Securities Act.
Section 1.2 The Conversion Shares. The Company has authorized and
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, such number of shares of
Common Stock equal to one hundred ten percent (110%) of the number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Notes then outstanding. Any shares of Common Stock issuable upon
conversion of the Notes are herein referred to as the "Conversion Shares". The
Notes and the Conversion Shares are sometimes together referred to as the
"Securities".
Section 1.3 Purchase Price and Closing. The Company agrees to issue
and sell to the Purchasers and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to purchase the
Notes. The aggregate purchase price of the Notes being acquired by each
Purchaser is set forth opposite such Purchaser's name on Exhibit A (for each
such Purchaser, the "Purchase Price" and collectively referred to as the
"Purchase Prices"). The closing of the purchase and sale of the Notes shall take
place at the offices of Jenkens & Gilchrist Parker Chapin LLP, The Chrysler
Building, 405 Lexington Avenue, New York, New York 10174 (the "Closing") at 1:00
p.m. (eastern time) upon the satisfaction of each of the conditions set forth in
Article IV hereof (the "Closing Date"). Funding with respect to the Closing
shall take place by wire transfer of immediately available funds on or prior to
the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth in the Company's Form 10-K for the year ended December 31, 2003, including
the accompanying financial statements (the "Form 10-K"), or in the Company's
Form 10-Q for the fiscal quarters ended June 30, 2004 or March 31, 2004
(collectively, the "Form 10-Q"), or on Schedule 2.1(a) hereto. The Company and
each such subsidiary 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
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit C (the "Registration
Rights Agreement"), the Security Agreement attached hereto as Exhibit D (the
"Security Agreement") and the Irrevocable Transfer Agent Instructions (as
defined in Section 3.14) attached hereto as Exhibit E (collectively, the
"Transaction Documents") and to issue and sell the Securities in accordance with
the terms hereof. The execution, delivery and the performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The other Transaction
Documents will have been duly executed and delivered by the Company at the
Closing. Each of the Transaction Documents constitutes, or shall constitute when
executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
and the shares thereof currently issued and outstanding as of November _, 2004
are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and any other outstanding security of the Company have
been duly and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock are entitled to preemptive rights or registration rights
and there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
2
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and the Registration Rights
Agreement or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a right
of rescission or claim for damages with respect thereto which would have a
Material Adverse Effect (as defined below). The Company has furnished or made
available to the Purchasers true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof (the "Articles"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws"). For the
purposes of this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under any
Transaction Document in any material respect.
(d) Issuance of Securities. The Notes to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for
or issued in accordance with the terms hereof, the Notes shall be validly issued
and outstanding. When the Conversion Shares are issued in accordance with the
terms of this Agreement and as set forth in the Notes, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and the performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Articles or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except, in all
3
cases other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly 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 the Transaction Documents, or issue and sell the
Securities in accordance with the terms hereof or thereof (other than any
filings which may be required to be made by the Company with the Commission or
state securities administrators subsequent to the Closing and any registration
statement which may be filed pursuant hereto); 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 the
Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as set forth on Schedule
2.1(f) hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents filed with the Commission since June 30, 2004. The Company has not
provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was required
to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. At the times of their respective filings, the Form 10-K and the Form
10-Q complied in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form 10-K and the Form
10-Q 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
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) 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 and its subsidiaries 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).
4
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership. For the
purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least twenty percent (20%) of the securities or other
ownership interest having ordinary voting power (absolutely or contingently) for
the election of directors or other persons performing similar functions are at
the time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No Material Adverse Change. Since June 30, 2004, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as set forth on Schedule
2.1(i) hereto, or in the Commission Documents, neither the Company nor any of
its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its subsidiaries respective businesses since June 30, 2004 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.
(j) No Undisclosed Events or Circumstances. Except as set forth on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(k) Indebtedness. The Form 10-K, Form 10-Q or Schedule 2.1(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
5
(l) Title to Assets. Each of the Company and its subsidiaries has
good and marketable title to all of its real and personal property reflected in
the Form 10-K, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the Form
10-K, Form 10-Q or on Schedule 2.1(l) hereto or such that, individually or in
the aggregate, do not cause a Material Adverse Effect. All leases of the Company
and each of its subsidiaries are valid and subsisting and in full force and
effect.
(m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-K, Form 10-Q
or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-K, Form 10-Q, or such that,
individually or in the aggregate, do not or would not cause a Material Adverse
Effect. Each of the Company and each of its subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. The Company and each of the subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the subsidiaries
for all current taxes and other charges to which the Company or any subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.
6
(q) Disclosure. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual Property. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations and all
rights with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-K or Form 10-Q describes all material permits,
licenses and other authorizations issued under any Environmental Laws to the
Company or its subsidiaries. "Environmental Laws" shall mean all applicable laws
relating to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law or that may give rise to any environmental
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance.
(t) Books and Record Internal Accounting Controls. The books and
records of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
7
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the reasonable judgment of
the Company, to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.
(u) Material Agreements. Except as set forth in the Form 10-K,
Form 10-Q or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-1 or
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. All Material
Agreements are valid and subsisting and in full force and effect. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, the Company and each of
its subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. Except as set forth on Schedule 2.1(u) or
in the Commission Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the preferred stock of the
Company ("Preferred Stock"), if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Form
10-K, Form 10-Q or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the
Securities under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Securities.
8
(x) Governmental Approvals. Except as set forth in the Form 10-K
or Form 10-Q, and except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D and a registration statement or statements pursuant to
the Registration Rights Agreement, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the execution or delivery of the
Notes, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto.
Except as set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto,
neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
December 31, 2003, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided on
Schedule 2.1(z) hereto, since June 30, 2004, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
other liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount to
the current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
9
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii)made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii)experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(bb) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which has caused or will cause a Material Adverse Effect. The
execution and delivery of this Agreement and the issuance and sale of the
Securities will not involve any transaction which is subject to the prohibitions
of Section 406 of ERISA or in connection with which a tax could be imposed
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
10
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(bb), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(cc) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interest of
other stockholders of the Company.
(dd) Independent Nature of Purchasers. The Company acknowledges
that the obligations of each Purchaser under the Transaction Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under the Transaction Documents. The decision of each
Purchaser to purchase the Securities pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions. The Company
acknowledges that nothing contained herein, or in any Transaction Document, and
no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
(ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings. The Company does not have any registration statement pending before
the Commission or currently under the Commission's review and, except as set
forth on Schedule 2.1(ee) hereto, since April 1, 2004, the Company has not
offered or sold any of its equity or debt securities.
11
(ff) (gg) (ff) (hh) (ii) Sarbanes-Oxley Act(jj) . The Company is in
compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), and the rules and regulations promulgated thereunder,
that are effective as of the date hereof, and intends to comply with other
applicable provisions of the Sarbanes-Oxley Act, and the rules and regulations
promulgated thereunder, upon the effectiveness of such provisions.
(gg) Nasdaq. The Company has not, in the twelve (12) months
preceding the date hereof, received notice from the Nasdaq SmallCap Market to
the effect that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Nasdaq SmallCap
Market.
Section 2.2 Representations and Warranties of the Purchasers. Each
of the Purchasers hereby makes the following representations and warranties to
the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser
is an entity, such Purchaser is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Notes being sold to it hereunder. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required. Each of this
Agreement and the Registration Rights Agreement has been duly authorized,
executed and delivered by such Purchaser and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
12
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Securities in accordance with
the terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Each Purchaser is acquiring the
Securities solely for its own account for the purpose of investment and not with
a view to or for sale in connection with distribution. Each Purchaser does not
have a present intention to sell the Securities, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of the
Securities to or through any person or entity; provided, however, that by making
the representations herein and subject to Section 2.2(h) below, such Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition. Each Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Securities and that it has been given full access to such
records of the Company and the subsidiaries and to the officers of the Company
and its subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status of Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.
(f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Rule 144. Such Purchaser understands that the Securities must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
13
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Securities
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(j) Independent Investment. No Purchaser has agreed to act with
any other Purchaser for the purpose of acquiring, holding, voting or disposing
of the Shares purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Shares.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D with
respect to the Securities as required under Regulation D, and shall take all
other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchasers or subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the Nasdaq SmallCap Market.
Section 3.3 Inspection Rights. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as such
Purchaser shall be obligated hereunder to purchase the Notes or shall
14
beneficially own any Conversion Shares which, in the aggregate, represent more
than 2% of the total combined voting power of all voting securities then
outstanding, for purposes reasonably related to such Purchaser's interests as a
stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any subsidiary, and to discuss the
affairs, finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Commission ceases making
periodic reports filed under Section 13 of the Exchange Act available via its
Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Securities or shall
beneficially own any Conversion Shares which, in the aggregate, represent more
than 2% of the total combined voting power of all voting securities then
outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as practical after the document is filed with the Commission, and in any
event within fifty-five (55) days after the end of each of the first three
fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon
as practical after the document is filed with the Commission, and in any event
within one hundred (100) days after the end of each fiscal year of the Company;
and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws in any way that would adversely affect the
conversion rights, voting rights or prepayment rights of the Notes.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
15
Section 3.9 Distributions. So long as any Notes remain outstanding,
the Company agrees that it shall not (i) declare or pay any dividends or make
any distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
Section 3.10 Intentionally Omitted.
Section 3.11 Use of Proceeds. The proceeds from the sale of the
Notes will be used by the Company for general corporate purposes, including,
without limitation, acquisitions and the retirement of indebtedness owed to the
lenders set forth on Schedule 3.11 hereto (the "Acquisition Indebtedness").
Section 3.12 Future Financings; Right of First Offer and Refusal.
(a) During the period commencing on the Closing Date and ending on the date that
is six (6) months and one (1) day following the Closing Date, the Company
covenants and agrees that it will not enter into any subsequent offer or sale
to, or exchange with (or other type of distribution to), any third party (a
"Subsequent Financing"), of Common Stock or Preferred Stock or any securities
convertible, exercisable or exchangeable into Common Stock or Preferred Stock,
including debt securities so convertible (collectively, the "Financing
Securities"), other than a Permitted Financing. For purposes of this Agreement,
"Permitted Financing" shall mean any transaction involving (i) the Company's
issuance of any Financing Securities (other than for cash) in connection with a
merger, acquisition or consolidation, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company's issuance of Financing Securities in connection with
bona fide firm underwritten public offerings of its securities, (iv) the
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Company's stock option plans and employee
stock purchase plans outstanding as they now exist, (v) as a result of the
exercise of options or warrants or conversion of convertible notes or preferred
stock which are granted or issued as of the date of this Agreement, (vi) the
issuance of up to 1,000,000 shares of Common Stock at a price per share greater
than $1.00, (vii) any warrants issued to the purchasers pursuant to the Series H
Convertible Preferred Stock Purchase Agreement dated as of November __, 2004 by
and among the Company and the signatories thereto (the "Preferred Stock Purchase
Agreement"), (viii) any warrants issued to the placement agent for the
transactions contemplated by the Preferred Stock Purchase Agreement, and (ix)
the payment of any dividends on the shares of Series H Convertible Preferred
Stock issued pursuant to the Preferred Stock Purchase Agreement.
(b) During the period commencing on the Closing Date and ending on
the date that is one (1) year following the Closing Date, the Company covenants
and agrees to promptly notify (in no event later than five (5) days after making
or receiving an applicable offer) in writing (a "Rights Notice") each Purchaser
of the terms and conditions of any proposed Subsequent Financing. The Rights
Notice shall describe, in reasonable detail, the proposed Subsequent Financing,
the proposed closing date of the Subsequent Financing, which shall be within
thirty (30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the "Rights Option") during the ten (10)
Trading Days (as defined in Section 3.17 hereof) following delivery of the
16
Rights Notice (the "Option Period") to inform the Company whether such Purchaser
will purchase up to its pro rata portion of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing. If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata basis
so long as such participation in the aggregate does not exceed the total
Purchase Price hereunder. For purposes of this Section, all references to "pro
rata" means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the principal amount of the
Notes purchased by such Purchaser at the Closing by (y) the total principal
amount of all of the Notes purchased at the Closing by all of the Purchasers
electing to participate in such Subsequent Financing. Delivery of any Rights
Notice constitutes a representation and warranty by the Company that there are
no other material terms and conditions, arrangements, agreements or otherwise
except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive notice of exercise of the
Rights Option from the Purchasers within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the material terms and conditions of
the closing are the same as those provided to the Purchasers in the Rights
Notice. If the closing of the proposed Subsequent Financing does not occur on
that date, any closing of the contemplated Subsequent Financing or any other
Subsequent Financing shall be subject to all of the provisions of this Section
3.12, including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.
(c) During the period commencing on the Closing Date and ending on
the date that is thirty six (36) months following the Closing Date, if the
Company enters into any Subsequent Financing, then each Purchaser in its sole
discretion may exchange its Notes then outstanding, valued at one hundred
percent (100%) of their principal amount, for the securities issued or to be
issued in the Subsequent Financing so long as such exchange is in compliance
with applicable securities laws. The Company covenants and agrees to promptly
notify in writing the Purchasers of the terms and conditions of any such
proposed Subsequent Financing. The Company is under no obligation, nor does the
Company have any present intention, to participate in a Subsequent Financing.
Section 3.13 Reservation of Shares. So long as any of the Notes
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than the
aggregate number of shares of Common Stock needed to provide for the issuance of
the Conversion Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by each Purchaser to the Company upon conversion of the Notes
in the form of Exhibit E attached hereto (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
17
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Conversion Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 3.14 shall affect in any
way each Purchaser's obligations and agreements set forth in Section 5.1 to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Shares. If a Purchaser provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Conversion Shares may be made without registration under the
Securities Act or the Purchaser provides the Company with reasonable assurances
that the Conversion Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares, promptly instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.15 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any of its subsidiaries shall sell,
transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business or with
the prior written consent of the holders of a majority of the principal amount
of the Notes then outstanding.
Section 3.16 Reporting Status. So long as any Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.17 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the Closing but in no
event later than four hours after the Closing; provided, however, that if
Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing Date. The Company shall also file with the
Commission a Current Report on Form 8-K (the "Form 8-K") describing the material
terms of the transactions contemplated hereby (and attaching as exhibits thereto
this Agreement, the form of Note, the Registration Rights Agreement and the
Security Agreement) as soon as practicable following the Closing Date but in no
18
event more than two (2) Trading Days following the Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means any day during which the Nasdaq SmallCap Market
(or other principal exchange on which the Common Stock is traded) shall be open
for trading.
Section 3.18 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
Section 3.19 Pledge of Securities. The Company acknowledges and
agrees that the Securities may be pledged by any Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Common Stock. Such a pledge of Common Stock shall not be deemed
to be a transfer, sale or assignment of the Common Stock hereunder, and no
Purchaser effecting such a pledge of Common Stock shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document; provided
that a Purchaser and its pledgee shall be required to comply with the provisions
of Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At each Purchaser's expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with any pledge contemplated by this Section
3.19.
Section 3.20 Stockholder Approval. In connection with any Subsequent
Financing, the Company covenants and agrees to use its best efforts to obtain
stockholder approval to authorize the issuance of shares of Common Stock in
connection with such Subsequent Financing in excess of 19.99% of the number of
shares of Common Stock outstanding immediately prior to the closing date of such
Subsequent Financing.
Section 3.21 Acquisition Indebtedness. The Company shall use it best
efforts to arrange for extensions of payments due in connection with the
Acquisition Indebtedness and shall use its best efforts to raise additional
capital through the sale of its equity securities, the proceeds of which will be
used to satisfy the Acquisition Indebtedness.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Securities. The obligation hereunder of the Company to issue and sell
the Notes to the Purchasers is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
19
(a) Accuracy of Each Purchaser's Representations and Warranties.
The representations and warranties of each Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Notes
shall have been delivered to the Company at or prior to the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
to which the Purchasers are parties have been duly executed and delivered by the
Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Securities. The obligation hereunder of each Purchaser to
acquire and pay for the Notes is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects as of
such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement other Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the Nasdaq SmallCap Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing Date), and,
at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities.
20
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Security Agreement. At the Closing, the Company shall have
executed and delivered the Security Agreement to each Purchaser.
(g) Opinion of Counsel, Etc. At the Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the Closing Date, in
the form of Exhibit F hereto, and such other certificates and documents as each
Purchaser or its counsel shall reasonably require incident to the Closing.
(h) Registration Rights Agreement. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(i) Notes. The Company shall have executed and delivered to each
Purchaser the Notes (in such denominations as such Purchaser shall request)
being acquired by such Purchaser at the Closing.
(j) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Notes, a number of shares of
Common Stock equal to one hundred ten percent (110%) of the aggregate number of
Conversion Shares issuable upon conversion of the Notes outstanding on the
Closing Date.
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
21
(n) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(o) UCC Financing Statements. The Company shall have filed all UCC
financing statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).
(p) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
STOCK CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Notes and
Conversion Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required by
applicable state securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR MULTIBAND CORPORATION SHALL HAVE
RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The Company agrees to reissue certificates representing any of the
Conversion Shares without the legend set forth above if at such time, prior to
making any transfer of any such securities, such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request. Such proposed transfer and
removal will not be effected until: (a) either (i) the Company has received an
opinion of counsel reasonably satisfactory to the Company, to the effect that
the registration of the Conversion Shares under the Securities Act is not
required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
22
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances that such security can be sold
pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company
has received an opinion of counsel reasonably satisfactory to the Company, to
the effect that registration or qualification under the securities or "blue sky"
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or "blue sky" laws has been
effected or a valid exemption exists with respect thereto. The Company will
respond to any such notice from a holder within five (5) business days. In the
case of any proposed transfer under this Section 5.1, the Company will use
reasonable efforts to comply with any such applicable state securities or "blue
sky" laws, but shall in no event be required, (x) to qualify to do business in
any state where it is not then qualified, (y) to take any action that would
subject it to tax or to the general service of process in any state where it is
not then subject, or (z) to comply with state securities or "blue sky" laws of
any state for which registration by coordination is unavailable to the Company.
The restrictions on transfer contained in this Section 5.1 shall be in addition
to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of this Agreement. Whenever a certificate
representing the Conversion Shares is required to be issued to a Purchaser
without a legend, in lieu of delivering physical certificates representing the
Conversion Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, the
Company shall use its reasonable best efforts to cause its transfer agent to
electronically transmit the Conversion Shares to a Purchaser by crediting the
account of such Purchaser's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system (to the extent not inconsistent with any
provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers or any such other persons as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as result of
any inaccuracy in or breach of the representations, warranties or covenants made
by such Purchaser herein. The maximum aggregate liability of each Purchaser
pursuant to its indemnification obligations under this Article VI shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.
23
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
24
Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Security Agreement or the Registration Rights Agreement, each
party shall pay the fees and expenses of its advisors, counsel, accountants and
other experts, if any, and all other expenses, incurred by such party incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement, provided that the Company shall pay all actual attorneys' fees and
expenses (including disbursements and out-of-pocket expenses) incurred by the
Purchasers in connection with (i) the preparation, negotiation, execution and
delivery of this Agreement, the Notes, the Security Agreement, the Registration
Rights Agreement and the transactions contemplated thereunder and the
preparation, negotiation, execution and delivery of the Preferred Stock Purchase
Agreement and the transactions contemplated thereunder, which payment shall be
made in cash at Closing and shall not exceed $30,000 (exclusive of disbursements
and out-of-pocket expenses), of which $20,000 shall be payable directly to
Gryphon Master Fund, L.P. and/or its counsel to reimburse it for the fees and
expenses, including attorneys' fees, in connection with its due diligence review
of the Company and review of the Transaction Documents, (ii) the filing and
declaration of effectiveness by the Commission of the Registration Statement (as
defined in the Registration Rights Agreement) and (iii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with the enforcement of this Agreement
or any of the other Transaction Documents, 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
Securities pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Notes, the Security Agreement or the Registration Rights
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement, the Notes, the Security Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.
25
Section 7.3 Entire Agreement; Amendment. This Agreement and the
other Transaction Documents contain the entire understanding and agreement of
the parties with respect to the matters covered hereby and, except as
specifically set forth herein or in the Transaction Documents, neither the
Company nor any of the Purchasers makes any representations, warranty, covenant
or undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the Company and the holders of at least
three-fourths (3/4) of the principal amount of the Notes then outstanding, and
no provision hereof may be waived other than by an a written instrument signed
by the party against whom enforcement of any such amendment or waiver is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Notes then outstanding. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents or holders of
the Notes, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, telecopy or facsimile 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 (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Multiband Corporation
9449 Science Center Drive
New Hope, MN 55428
Attention:
Tel No.: (763) 504-3000
Fax No.: (763) 504-3060
with copies to: [Insert Address]
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A
or as specified in writing by such Purchaser
with copies to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attention: Christopher S. Auguste, Esq.
Tel No.: (212) 704-6000
Fax No.: (212) 704-6288
26
Any party hereto may from time to time change its address for
notices by giving at least ten (10) days written notice of such changed address
to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Waiver of Jury Trial. Each party hereto hereby waives
to the fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any litigation directly or indirectly arising out
of, under, or in connection with, this Agreement. Each party hereto (A)
certifies that no representative, agent or attorney of any other party has
represented expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (B) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement, by among other things, the mutual waivers and certifications in this
Section 7.10.
Section 7.11 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date three (3) years from the Closing Date, and the agreements and
covenants set forth in Articles I, III, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder; provided,
that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11, 3.13, 3.14, 3.15,
3.16, and 3.18 shall not expire until the Registration Statement required by
Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement.
27
Section 7.12 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 7.13 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
Section 7.14 Severability. The provisions of this Agreement, the
Notes, the Security Agreement and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Notes, the Security Agreement or the
Registration Rights Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, the Notes, the Security Agreement or the Registration Rights
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section 7.15 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Security Agreement, the Securities and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer as of the date first
above written.
MULTIBAND CORPORATION
By:
------------------------------
Name:
Title:
PURCHASER
By:
------------------------------
Name:
Title:
EXHIBIT A TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
NAMES AND ADDRESSES DOLLAR AMOUNT OF
OF PURCHASERS INVESTMENT
------------------- ----------------
EXHIBIT B TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF NOTE
EXHIBIT C TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF SECURITY AGREEMENT
EXHIBIT E TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
MULTIBAND CORPORATION
as of November _, 2004
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Note Purchase Agreement (the
"Purchase Agreement"), dated as of November _, 2004, by and among Multiband
Corporation, a Minnesota corporation (the "COMPANY"), and the purchasers named
therein (collectively, the "PURCHASERS") pursuant to which the Company is
issuing to the Purchasers secured convertible promissory notes (the "NOTES"),
convertible into shares of the Company's common stock, no par value per share
(the "COMMON STOCK"). This letter shall serve as our irrevocable authorization
and direction to you (provided that you are the transfer agent of the Company at
such time) to issue shares of Common Stock upon conversion of the Notes (the
"CONVERSION SHARES") to or upon the order of a Purchaser from time to time upon
(i) surrender to you of a properly completed and duly executed Conversion
Notice, in the form attached hereto as Exhibit I, (ii) a copy of the Note
representing the principal amount of the Notes being converted (or an
indemnification undertaking with respect to such Note in the case of its loss,
theft or destruction), and (iii) delivery of a treasury order or other
appropriate order duly executed by a duly authorized officer of the Company. So
long as you have previously received (x) written confirmation from counsel to
the Company that a registration statement covering resales of the Conversion
Shares has been declared effective by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"), and
no subsequent notice by the Company or its counsel of the suspension or
termination of its effectiveness and (y) a copy of such registration statement,
and if the Purchaser represents in writing that the Conversion Shares were sold
pursuant to the Registration Statement, then certificates representing the
Conversion Shares shall not bear any legend restricting transfer of the
Conversion Shares thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares has been declared effective by the SEC
under the 1933 Act, and (ii) a copy of such registration statement, then the
certificates for the Conversion Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS, OR MULTIBAND CORPORATION SHALL HAVE RECEIVED
AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
in the event a registration statement covering the Conversion Shares is subject
to amendment for events then current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
II.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Purchase Agreement and, accordingly, each
Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
MULTIBAND CORPORATION
By:_____________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:__________________________________
Name:_____________________________
Title:____________________________
Date:_____________________________
EXHIBIT I
MULTIBAND CORPORATION
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. CN-04-___ into shares of Common Stock of
Multiband Corporation (the "Maker") according to the conditions hereof, as of
the date written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion:__________________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
__________________________________________________________________
EXHIBIT II
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: MULTIBAND CORPORATION
Ladies and Gentlemen:
We are counsel to Multiband Corporation, a Minnesota corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Note Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of November _,
2004, by and among the Company and the purchasers named therein (collectively,
the "PURCHASERS") pursuant to which the Company issued to the Purchasers secured
convertible promissory notes (the "NOTES"), convertible into shares of the
Company's common stock, no par value per share (the "COMMON STOCK"). Pursuant to
the Purchase Agreement, the Company has also entered into a Registration Rights
Agreement with the Purchasers (the "REGISTRATION RIGHTS AGREEMENT"), dated as of
November _, 2004, pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes, under the Securities Act of 1933, as amended (the "1933 ACT"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ________________, 2004, the Company filed a Registration Statement
on Form S-1 (File No. 333-________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the resale of the
Registrable Securities which names each of the present Purchasers as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:_____________________________
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT F TO THE
NOTE PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of Minnesota and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. 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.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes and the Common Stock issuable upon conversion of the Notes. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company, its Board of Directors or its
stockholders is required. Each of the Transaction Documents have been duly
executed and delivered, and the Notes have been duly executed, issued and
delivered by the Company and each of the Transaction Documents constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms. The Common Stock issuable upon
conversion of the Notes are not subject to any preemptive rights under the
Articles of Incorporation or the Bylaws.
3. The Notes have been duly authorized and, when delivered against
payment in full as provided in the Purchase Agreement, will be validly issued,
fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Notes have been duly authorized and reserved for issuance, and
when delivered upon conversion as provided in the Notes, will be validly issued,
fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes and the Common
Stock issuable upon conversion of the Notes do not (a) violate any provision of
the Articles of Incorporation or Bylaws, (b) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party and which is set forth on Schedule I, (c) create
or impose a lien, charge or encumbrance on any property of the Company under any
agreement or any commitment which is set forth on Schedule I to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (d) result in a violation of any
Federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction 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, in all cases other than violations
pursuant to clauses (a) and (d) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Notes and the Common Stock issuable upon
conversion of the Notes other than filings as may be required by applicable
Federal and state securities laws and regulations and any applicable stock
exchange rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Purchase Agreement or the transactions contemplated thereby or
any action taken or to be taken pursuant thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.
7. Assuming that all of the Purchasers' representations and warranties
in the Purchase Agreement are complete and accurate, the offer, issuance and
sale of the Notes and the offer, issuance and sale of the Common Stock issuable
upon conversion of the Notes are exempt from the registration requirements of
the Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Very truly yours,
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.
MULTIBAND CORPORATION
Secured Convertible Promissory Note
due November __, 2007
No. CN-04-__ $____________
Dated: November __, 2004
For value received, Multiband Corporation, a Minnesota corporation (the
"Maker"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of ________________________ ($______________), together with interest
thereon. Concurrently with the issuance of this Note, the Maker is issuing
separate secured convertible promissory notes (the "Other Notes") to separate
purchasers (the "Other Holders") pursuant to the Purchase Agreement (as defined
in Section 1.1 hereof).
All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on November
__, 2007 (the "Maturity Date") or at such earlier time as provided herein.
ARTICLE VIII
Section 8.1 Purchase Agreement. This Note has been executed and
delivered pursuant to the Note Purchase Agreement dated as of November __, 2004
(the "Purchase Agreement") by and among the Maker and the purchasers listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
Section 8.2 Interest. Beginning on the issuance date of this Note
(the "Issuance Date"), the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to six percent (6%), payable
semi-annually at the option of the Maker in cash or in shares of the Maker's
common stock, no par value per share (the "Common Stock"), on December 31 and
June 30 of each year, commencing December 31, 2004, except that if such date is
not a business day then the interest shall be payable on the first immediately
succeeding business day. The number of shares of Common Stock to be issued as
payment of accrued and unpaid interest shall be determined by dividing (a) the
total amount of accrued and unpaid interest to be converted into Common Stock by
(b) the Conversion Price (as defined in Section 3.2 hereof). Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day months and shall
accrue commencing on the Issuance Date. Furthermore, upon the occurrence of an
Event of Default (as defined in Section 2.1 hereof), then to the extent
permitted by law, the Maker will pay interest to the Holder, payable on demand,
on the outstanding principal balance of the Note from the date of the Event of
Default until such Event of Default is cured at the rate of the lesser of ten
percent (10%) and the maximum applicable legal rate per annum.
Section 8.3 Security Agreement. The obligations of the Maker
hereunder are secured by a continuing security interest in all of the property
and assets of the Maker pursuant to the terms of a security agreement dated as
of the date hereof.
Section 8.4 Senior Securities. So long as this Note or any other
Note is outstanding, the Maker shall not issue any securities that rank pari
passu or senior to this Note without the affirmative vote or consent of the
holders of at least seventy-five percent (75%) of the principal amount of the
Notes outstanding at the time. Notwithstanding anything in the foregoing to the
contrary, the Holder acknowledges that the indebtedness payable to the entities
listed on Schedule I attached hereto shall rank senior to the Maker's
obligations under this Note and the Other Notes. All other indebtedness of the
Company shall rank junior to the Maker's obligations under this Note and the
Other Notes.
Section 8.5 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be due on the next succeeding business
day and such next succeeding day shall be included in the calculation of the
amount of accrued interest payable on such date.
Section 8.6 Transfer. This Note may be transferred or sold, subject
to the provisions of Section 4.8 of this Note, or pledged, hypothecated or
otherwise granted as security by the Holder.
Section 8.7 Replacement. Upon receipt of a duly executed, notarized
and unsecured written statement from the Holder with respect to the loss, theft
or destruction of this Note (or any replacement hereof), and without requiring
an indemnity bond or other security, or, in the case of a mutilation of this
Note, upon surrender and cancellation of such Note, the Maker shall issue a new
Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.
ARTICLE IX
EVENTS OF DEFAULT; REMEDIES
Section 9.1 Events of Default. The occurrence of any of the
following events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the payment of any amount of
principal outstanding on the date such payment is due hereunder; or
13
(b) the Maker shall fail to make any payment of interest in cash
or convertible promissory notes for a period of five (5) days after the date
such interest is due; or
(c) the failure of the Registration Statement to be declared
effective by the Securities and Exchange Commission on or prior to the date
which is one hundred twenty (120) days after the Filing Date (as defined in the
Registration Rights Agreement); or
(d) the suspension from listing, without subsequent listing on any
one of, or the failure of the Common Stock to be listed on at least one of the
OTC Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
(5) consecutive Trading Days; or
(e) the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or
(f) the Maker shall fail to (i) timely deliver the shares of
Common Stock upon conversion of the Note or any interest accrued and unpaid,
(ii) timely file the Registration Statement or (iii) make the payment of any
fees and/or liquidated damages under this Note, the Purchase Agreement or the
Registration Rights Agreement, which failure in the case of items (i) and (iii)
of this Section 2.1(f) is not remedied within three (3) business days after the
incurrence thereof; or
(g) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the Maker has not exercised its rights
pursuant to Section 3(n) of the Registration Rights Agreement and the cause of
such lapse or unavailability is not due to factors primarily within the control
of Holder; or
(h) default shall be made in the performance or observance of (i)
any material covenant, condition or agreement contained in this Note (other than
as set forth in clause (f) of this Section 2.1) and such default is not fully
cured within five (5) business days after the occurrence thereof or (ii) any
material covenant, condition or agreement contained in the Purchase Agreement,
the Other Notes or the Registration Rights Agreement which is not covered by any
other provisions of this Section 2.1 and such default is not fully cured within
five (5) business days after the occurrence thereof; or
(i) any material representation or warranty made by the Maker
herein or in the Purchase Agreement, the Registration Rights Agreement or the
Other Notes shall prove to have been false or incorrect or breached in a
material respect on the date as of which made; or
14
(j) the Maker shall (i) default in any payment of any amount or
amounts of principal of or interest on any Indebtedness (other than the
Indebtedness hereunder) the aggregate principal amount of which Indebtedness is
in excess of $100,000 or (ii) default in the observance or performance of any
other agreement or condition relating to any Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(k) the Maker shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(l) a proceeding or case shall be commenced in respect of the
Maker, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Maker or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of sixty (60) days or any order for relief shall be entered
in an involuntary case under United States Bankruptcy Code (as now or hereafter
in effect) or under the comparable laws of any jurisdiction (foreign or
domestic) against the Maker or action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing shall be taken with
respect to the Maker and shall continue undismissed, or unstayed and in effect
for a period of sixty (60) days; or
(m) the failure of the Maker to instruct its transfer agent to
remove any legends from shares of Common Stock eligible to be sold under Rule
144 of the Securities Act and issue such unlegended certificates to the Holder
within three (3) business days of the Holder's request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be resold pursuant to Rule 144; or
(n) the failure of the Maker to pay any amounts due to the Holder
herein or in the Purchase Agreement or the Registration Rights Agreement within
three (3) business days of receipt of notice to the Maker; or
(o) the occurrence of an Event of Default under the Other Notes.
15
Section 9.2 Remedies Upon An Event of Default. If an Event of
Default shall have occurred and shall be continuing, the Holder of this Note may
at any time at its option, (a) declare the entire unpaid principal balance of
this Note, together with all interest accrued hereon, due and payable, and
thereupon, the same shall be accelerated and so due and payable, without
presentment, demand, protest, or notice, all of which are hereby expressly
unconditionally and irrevocably waived by the Maker; provided, however, that
upon the occurrence of an Event of Default described in (i) Sections 2.1 (k) or
(l), the outstanding principal balance and accrued interest hereunder shall be
automatically due and payable and (ii) Sections 2.1 (c)-(j), demand the
prepayment of this Note pursuant to Section 3.7 hereof, (b) demand that the
principal amount of this Note then outstanding and all accrued and unpaid
interest thereon shall be converted into shares of Common Stock at a Conversion
Price per share calculated pursuant to Section 3.1 hereof assuming that the date
that the Event of Default occurs is the Conversion Date (as defined in Section
3.1 hereof), or (c) exercise or otherwise enforce any one or more of the
Holder's rights, powers, privileges, remedies and interests under this Note, the
Security Agreement, the Purchase Agreement, the Registration Rights Agreement or
applicable law. No course of delay on the part of the Holder shall operate as a
waiver thereof or otherwise prejudice the right of the Holder. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
ARTICLE X
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 10.1 Conversion Option. At any time on or after the Issuance
Date, this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into such number of fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") as is determined
by dividing (x) that portion of the outstanding principal balance plus any
accrued but unpaid interest under this Note as of such date that the Holder
elects to convert by (y) the Conversion Price (as hereinafter defined) then in
effect on the date on which the Holder faxes a notice of conversion (the
"Conversion Notice"), duly executed, to the Maker (facsimile number (763)
504-3060, Attn.: Chief Financial Officer) (the "Conversion Date"), provided,
however, that the Conversion Price shall be subject to adjustment as described
in Section 3.6 below. The Holder shall deliver this Note to the Maker at the
address designated in the Purchase Agreement at such time that this Note is
fully converted. With respect to partial conversions of this Note, the Maker
shall keep written records of the amount of this Note converted as of each
Conversion Date.
Section 10.2 Conversion Price.
(a) The term "Conversion Price" shall mean $1.00 per share,
subject to adjustment under Section 3.6 hereof. Notwithstanding any adjustment
hereunder, at no time shall the Conversion Price be greater than $1.00 per share
except if it is adjusted pursuant to Section 3.6(a)(i) hereof.
(b) Notwithstanding any of the foregoing to the contrary, if
during any period (a "Black-out Period"), a Holder is unable to trade any Common
Stock issued or issuable upon conversion of this Note immediately due to the
postponement of filing or delay or suspension of effectiveness of a registration
16
statement or because the Maker has otherwise informed such Holder that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the Holder of the Notes or due to the Maker exercising its rights under Section
3(n) of the Registration Rights Agreement), such Holder shall have the option
but not the obligation on any Conversion Date within ten (10) Trading Days
following the expiration of the Black-out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected by such
Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten (10) Trading Days
thereafter. In no event shall the Black-out Period have any effect on the
Maturity Date of this Note.
(c) The term "Closing Bid Price" shall mean, for any security as
of any date, the last closing bid price of such security on the Nasdaq SmallCap
Market for such security as reported by Bloomberg, or, if no closing bid price
is reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg. If the Closing Bid Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Maker and the holders of a majority of the principal amount of
the Notes outstanding.
Section 10.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion
Date, the Maker or its designated transfer agent, as applicable, shall issue and
deliver to the Depository Trust Company ("DTC") account on the Holder's behalf
via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding the foregoing
to the contrary, the Maker or its transfer agent shall only be obligated to
issue and deliver the shares to the DTC on the Holder's behalf via DWAC (or
certificates free of restrictive legends) if such conversion is in connection
with a sale and the Holder has complied with the applicable prospectus delivery
requirements. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
Delivery Date, the Holder shall be entitled by written notice to the Maker at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.
(b) The Maker understands that a delay in the delivery of the
shares of Common Stock upon conversion of this Note beyond the Delivery Date
could result in economic loss to the Holder. If the Maker fails to deliver to
the Holder such shares via DWAC or a certificate or certificates pursuant to
this Section hereunder by the Delivery Date, the Maker shall pay to such Holder,
17
in cash, an amount per Trading Day for each Trading Day until such shares are
delivered via DWAC, certificates are delivered or the Holder effects a Buy-In
pursuant to Section 3.3(c) hereof (provided that the Buy-In amount is paid by
the Maker to the Holder within three business days of written notice to the
Maker), together with interest on such amount at a rate of 10% per annum,
accruing until such amount and any accrued interest thereon is paid in full,
equal to the greater of (A) (i) 1% of the aggregate principal amount of the
Notes requested to be converted for the first five (5) Trading Days after the
Delivery Date and (ii) 2% of the aggregate principal amount of the Notes
requested to be converted for each Trading Day thereafter and (B) $2,000 per day
(which amount shall be paid as liquidated damages and not as a penalty). Nothing
herein shall limit a Holder's right to pursue actual damages for the Maker's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive relief).
Notwithstanding anything to the contrary contained herein, the Holder shall be
entitled to withdraw a Conversion Notice, and upon such withdrawal the Maker
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn. The
Maker shall not be liable for any payments under this Section 3.3(b) if the
Maker's failure to deliver the shares on the Delivery Date was the result of
events beyond the Maker's control including events such as fire, flood, strikes,
labor troubles or other industrial disturbances, riots and insurrections, war
and acts of terrorism. The Maker shall immediately notify the Holder of the
occurrence of such an event. Immediately after such event no longer is
continuing, the Maker shall deliver the shares.
(c) In addition to any other rights available to the Holder, if
the Maker fails to deliver to the Holder such certificate or certificates
pursuant to Section 3.3(a) by the Delivery Date and if after the Delivery Date
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Maker shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds, if any, received by such Holder
from the sale of the shares of Common Stock issued by the Maker pursuant to such
conversion, together with interest thereon at a rate of the lesser of 10% and
the maximum applicable legal rate per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate principal
amount of this Note, the Maker shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Maker written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
Section 10.4 Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section
3 of this Note, at no time may the Holder convert all or a portion of this Note
if the number of shares of Common Stock to be issued pursuant to such
conversion, when aggregated with all other shares of Common Stock owned by the
Holder at such time, the number of shares of Common Stock which would result in
the Holder beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 4.9% of all of the
Common Stock outstanding at such time; provided, however, that upon the Holder
18
providing the Maker with sixty-one (61) days notice (pursuant to Section 4.1
hereof) (the "Waiver Notice") that the Holder would like to waive this Section
3.4(a) with regard to any or all shares of Common Stock issuable upon conversion
of this Note, this Section 3.4(a) will be of no force or effect with regard to
all or a portion of the Note referenced in the Waiver Notice; provided, further,
that this provision shall be of no further force or effect during the sixty-one
(61) days immediately preceding the Maturity Date. The Holder of this Note may
waive this Section 3.4(a) by so indicating on the signature page to the Purchase
Agreement, any such waiver to be effective on and as of the date hereof.
(b) Notwithstanding anything to the contrary set forth in Section
3 of this Note, at no time may the Holder convert all or a portion of this Note
if the number of shares of Common Stock to be issued pursuant to such
conversion, when aggregated with all other shares of Common Stock owned by the
Holder at such time, would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.9% of the then issued and outstanding shares of
Common Stock outstanding at such time; provided, however, that upon the Holder
providing the Maker with a Waiver Notice that the Holder would like to waive
Section 3.4(b) of this Note with regard to any or all shares of Common Stock
issuable upon conversion of this Note, this Section 3.4(b) shall be of no force
or effect with regard to all or a portion of the Note referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the Maturity Date.
The Holder of this Note may waive this Section 3.4(b) by so indicating on the
signature page to the Purchase Agreement, any such waiver to be effective on and
as of the date hereof.
Section 10.5 Intentionally Omitted.
Section 10.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time
to time as follows:
(i) Adjustments for Stock Splits and Combinations. If the
Maker shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the applicable Conversion Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Maker shall at any time or from time to time after the Issuance Date,
combine the outstanding shares of Common Stock, the applicable Conversion Price
in effect immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 3.6(a)(i) shall be effective at
the close of business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the Maker shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, the applicable Conversion
Price then in effect by a fraction:
19
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(1) (2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holders of this
Note shall receive upon conversions thereof, in addition to the number of shares
of Common Stock receivable thereon, the number of securities of the Maker which
they would have received had this Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period), giving application
to all adjustments called for during such period under this Section 3.6(a)(iii)
with respect to the rights of the holders of this Note and the Other Notes;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.
(iv) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert this Note into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
20
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Maker (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section 3.6(a)(i), (ii) and (iii), or a reclassification,
exchange or substitution of shares provided for in Section 3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another corporation where the
holders of outstanding voting securities prior to such merger or consolidation
do not own over fifty percent (50%) of the outstanding voting securities of the
merged or consolidated entity, immediately after such merger or consolidation,
or the sale of all or substantially all of the Maker's properties or assets to
any other person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Maker or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.6(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.6(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note and the Other
Notes) shall be applied after that event in as nearly an equivalent manner as
may be practicable.
(b) No Impairment. The Maker shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or enjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to one hundred percent (100%) of the amount of the Notes the Holder
has elected to convert, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Holder in the event it obtains judgment.
(c) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to the Holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount; provided, however, that any adjustments that by reason
of this subsection (c) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment..
21
(d) Issue Taxes. The Maker shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of this
Note pursuant thereto; provided, however, that the Maker shall not be obligated
to pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of this Note. In lieu of any fractional shares to
which the Holder would otherwise be entitled, the Maker shall pay cash equal to
the product of such fraction multiplied by the average of the Closing Bid Prices
of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
(f) Reservation of Common Stock. The Maker shall at all times when
this Note shall be outstanding, reserve and keep available out of its authorized
but unissued Common Stock, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of this Note and all
interest accrued thereon; provided, that the number of shares of Common Stock so
reserved shall at no time be less than 110% of the number of shares of Common
Stock for which this Note and all interest accrued thereon are at any time
convertible. The Maker shall increase the authorized number of shares of Common
Stock if at any time the unissued number of authorized shares shall not be
sufficient to satisfy the Maker's obligations under this Section 3.6(f).
(g) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Maker shall, at its sole cost and expense, in
good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything
to the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(c)-(l) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay in cash all or a portion of
this Note at a price equal to the Triggering Event Prepayment Price (as defined
in Section 3.7(c) below) applicable at the time of such request (the "Event of
Default Prepayment Price"). Nothing in this Section 3.7(a) shall limit the
Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all
other rights of the Holder contained herein, simultaneous with the occurrence of
a Major Transaction (as defined below), the Holder shall have the right, at the
Holder's option, to require the Maker to prepay all or a portion of the Holder's
Notes at a price equal to one hundred percent (100%) of the aggregate principal
amount of this Note plus all accrued and unpaid interest (the "Major Transaction
Prepayment Price"); provided that the Maker shall have the sole option to pay
the Major Transaction Prepayment Price in cash or shares of Common Stock. If the
22
Maker elects to pay the Major Transaction Prepayment Price in shares of Common
Stock, the price per share shall be based upon the Conversion Price then in
effect on the day preceding the date of delivery of the Notice of Prepayment at
Option of Holder Upon Major Transaction (as hereafter defined) and the Holder of
such shares of Common Stock shall have demand registration rights with respect
to such shares.
(c) Prepayment Option Upon Triggering Event. In addition to all
other rights of the Holder contained herein, after a Triggering Event (as
defined below), the Holder shall have the right, at the Holder's option, to
require the Maker to prepay all or a portion of the Holder's Notes in cash at a
price equal to one hundred percent (100%) of the aggregate principal amount of
this Note plus all accrued and unpaid interest (the "Triggering Event Prepayment
Price," and, collectively with the "Major Transaction Prepayment Price," the
"Prepayment Price").
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination
of the Maker with or into another Person (as defined in Section 4.13 hereof)
(other than (A) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities).
(ii) the sale or transfer of more than fifty percent (50%) of
the Maker's assets (based on the fair market value as determined in good faith
by the Maker's Board of Directors) other than inventory in the ordinary course
of business in one or a related series of transactions; or
(iii) closing of a purchase, tender or exchange offer made to
the holders of more than fifty percent (50%) of the outstanding shares of Common
Stock in which more than fifty percent (50%) of the outstanding shares of Common
Stock were tendered and accepted.
(f) "Triggering Event." A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness
of the Registration Statement, after it becomes effective, (i) lapses for any
reason (including, without limitation, the issuance of a stop order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock, and such lapse
or unavailability continues for a period of twenty (20) consecutive Trading
Days, and the shares of Common Stock into which the Holder's Notes can be
converted cannot be sold in the public securities market pursuant to Rule
144(k), provided that the cause of such lapse or unavailability is not due to
factors primarily within the control of the Holder of the Notes; and provided
further that a Triggering Event shall not have occurred if and to the extent the
Maker exercised its rights set forth in Section 3(n) of the Registration Rights
Agreement;
23
the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc., for a period of five
(5) consecutive Trading Days;
the Maker's notice to any holder of the Notes, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 3.8) or its intention not to comply with
proper requests for conversion of any Notes into shares of Common Stock; or
the Maker's failure to comply with a Conversion Notice tendered in
accordance with the provisions of this Note within ten (10) business days after
the receipt by the Maker of the Conversion Notice.
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Maker shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the Holder of this Note. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered at
least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Major Transaction, all of the holder's Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Major Transaction") to the Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Major Transaction Prepayment Price, as calculated pursuant to Section
3.7(b) above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering
Event. Within one (1) business day after the occurrence of a Triggering Event,
the Maker shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to each holder of the Notes. At any time
after the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note and the
Other Notes then outstanding may require the Maker to prepay all of the Notes on
a pro rata basis by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon Triggering
Event") to the Maker, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the amount of the Note that such holder is
electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder shall only be
permitted to require the Maker to prepay the Note pursuant to Section 3.7 hereof
for the greater of a period of ten (10) days after receipt by such holder of a
Notice of Triggering Event or for so long as such Triggering Event is
continuing.
24
(j) Intentionally Omitted.
(k) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the Prepayment Price), in addition
to any remedy such holder of the Notes may have under this Note and the Purchase
Agreement, the applicable Prepayment Price payable in respect of such Notes not
prepaid shall bear interest at the rate of one percent (1%) per month (prorated
for partial months) until paid in full. Until the Maker pays such unpaid
applicable Prepayment Price in full to a holder of the Notes submitted for
prepayment, such holder shall have the option (the "Void Optional Prepayment
Option") to, in lieu of prepayment, require the Maker to promptly return to such
holder(s) all of the Notes that were submitted for prepayment by such holder(s)
under this Section 3.7 and for which the applicable Prepayment Price has not
been paid, by sending written notice thereof to the Maker via facsimile (the
"Void Optional Prepayment Notice"). Upon the Maker's receipt of such Void
Optional Prepayment Notice(s) and prior to payment of the full applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at Option of Holder
Upon Major Transaction, as the case may be, shall be null and void with respect
to those Notes submitted for prepayment and for which the applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return any Notes
submitted to the Maker by each holder for prepayment under this Section 3.7(k)
and for which the applicable Prepayment Price has not been paid and (iii) the
Conversion Price of such returned Notes shall be adjusted to the lesser of (A)
the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect. A holder's delivery of a Void Optional Prepayment Notice
and exercise of its rights following such notice shall not effect the Maker's
obligations to make any payments which have accrued prior to the date of such
notice. Payments provided for in this Section 3.7 shall have priority to
payments to other stockholders in connection with a Major Transaction.
25
(l) Maker's Prepayment Option.
(i) Commencing one (1) year following the Effectiveness Date
(as defined in the Registration Rights Agreement, dated November _, 2004,
between the Maker and the purchasers listed on Schedule I thereto), so long as
(A) the Closing Bid Price of the Common Stock equals or exceeds $2.00 for a
period of any ten (10) Trading Days out of fifteen (15) consecutive Trading Days
so long as the first Trading Day of such fifteen (15) Trading Day period is
following the date that is one (1) year from the Effectiveness Date, (B) the
Registration Statement is effective and has been effective, without lapse or
suspension of any kind, for a period sixty (60) consecutive calendar days, or
the shares of Common Stock into which this Note and the Other Notes can be
converted may be offered for sale to the public pursuant to Rule 144(k) under
the Securities Act of 1933, as amended, (C) trading in the Common Stock shall
not have been suspended by the Securities and Exchange Commission or the Nasdaq
SmallCap Market and (D) the Maker is in material compliance with the terms and
conditions of the Transaction Documents, the Maker may prepay all or any portion
of this Note, plus any accrued but unpaid interest, upon ten (10) business days
prior written notice to the Holder (the "Maker Prepayment Notice") at a cash
prepayment price equal to one hundred percent (100%) of the outstanding
principal amount of this Note plus any accrued and unpaid interest.
(ii) Commencing one (1) year following the Effectiveness
Date, so long as (A) the Registration Statement is effective and has been
effective, without lapse or suspension of any kind, for a period sixty (60)
consecutive calendar days, or the shares of Common Stock into which this Note
can be converted may be offered for sale to the public pursuant to Rule 144(k)
under the Securities Act of 1933, as amended, (B) trading in the Common Stock
shall not have been suspended by the Securities and Exchange Commission or the
Nasdaq SmallCap Market and (C) the Maker is in material compliance with the
terms and conditions of the Transaction Documents (as defined in the Purchase
Agreement), the Maker may prepay all or any portion of this Note, plus any
accrued but unpaid interest, upon providing to the Holder a Maker Prepayment
Notice at a cash prepayment price equal to (1) in the event the Market Price (as
defined below) of the Maker's Common Stock is below $1.00 per share at the time
the Maker Prepayment Notice is sent by the Maker via facsimile to the Holder,
one hundred percent (100%) of the outstanding principal amount of this Note plus
any accrued and unpaid interest or (2) in the event the Market Price of the
Maker's Common Stock is above $1.00 per share at the time the Maker Prepayment
Notice is sent by the Maker via facsimile to the Holder, (a) one hundred twenty
percent (120%) of the outstanding principal amount of this Note plus any accrued
and unpaid interest if the Maker Prepayment Notice is given during the period
from the date Issuance Date through the one (1) year anniversary of the Issuance
Date, (b) one hundred twenty five percent (125%) of the outstanding principal
amount of this Note plus any accrued and unpaid interest if the Maker Prepayment
Notice is given during the period from the one (1) year anniversary of the
Issuance Date through the two (2) year anniversary, or (c) one hundred thirty
percent (130%) of the outstanding principal amount of this Note plus any accrued
and unpaid interest if the Maker Prepayment Notice is given after the two (2)
year anniversary of the Issuance Date.
26
(iii) Notwithstanding anything contained in this Section
3.7(l) to the contrary, if the Holder has delivered a Conversion Notice to the
Maker or delivers a Conversion Notice after receipt of the Maker's Prepayment
Notice, the portion of this Note designated to be converted may not be prepaid
by the Maker. The Maker may not deliver a Maker Prepayment Notice to the Holder
unless the Maker has clear and good funds for a minimum of the amount it intends
to prepay in a bank account controlled by the Maker. The Maker Prepayment Notice
shall state the date of prepayment (the "Maker Prepayment Date"), the prepayment
price, the principal amount of the Notes of such Holder to be prepaid and shall
call upon the Holder to surrender to the Maker on the Maker Prepayment Date at
the place designated in the Maker Prepayment Notice such Holder's Note. The
Maker Prepayment Date shall be no more than ten (10) Trading Days after the date
on which the Holder is notified of the Maker's intent to prepay this Note (the
"Maker Prepayment Notice Date"). If the Maker fails to pay the prepayment price
by the eleventh (11th) Trading Day following the Maker Prepayment Notice Date,
the prepayment will be declared null and void and the Maker shall lose its right
to deliver a Maker Prepayment Notice to the Holder in the future. On or after
the Maker Prepayment Date, the Holder shall surrender this Note to the Maker at
the place designated in the Maker Prepayment Notice and shall thereupon be
entitled to receive payment of the prepayment price. "Market Price" shall mean
one hundred percent (100%) of the average Closing Bid Price, as defined herein,
for the Maker's Common Stock for the five (5) Trading Days prior to the date the
Maker Prepayment Notice is sent by the Maker via facsimile to the Holder.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the
Maker's receipt of a Conversion Notice, the Maker cannot issue shares of Common
Stock registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder's option, can elect to:
require the Maker to prepay that portion of this Note for
which the Maker is unable to issue Common Stock in accordance with the Holder's
Conversion Notice (the "Mandatory Prepayment") at a price per share equal to the
Triggering Event Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) above, require the Maker to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have returned,
as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Maker's obligations to make any payments which have accrued
prior to the date of such notice).
27
In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have
its Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of the Maker's
receipt of the Holder's Notice in Response to Inability to Convert, provided
that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the Maker
receives a Conversion Notice from more than one holder of the Notes on the same
day and the Maker can convert and prepay some, but not all, of the Notes
pursuant to this Section 3.8, the Maker shall convert and prepay from each
holder of the Notes electing to have its Notes converted and prepaid at such
time an amount equal to such holder's pro-rata amount (based on the principal
amount of the Notes held by such holder relative to the principal amount of the
Notes outstanding) of all the Notes being converted and prepaid at such time.
28
Section 3.9 No Rights as Shareholder. Nothing contained in this Note
shall be construed as conferring upon the Holder, prior to the conversion of
this Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker takes a record (x) with respect to any dividend or
distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Maker will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public. The Maker shall promptly notify the Holder of
this Note of any notices sent or received, or any actions taken with respect to
the Other Notes.
Section 11.2 Governing Law. This Note shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Note shall
not be interpreted or construed with any presumption against the party causing
this Note to be drafted.
Section 11.3 Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.
Section 11.4 Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including, without limitation, a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Maker to comply with the terms of this Note. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
29
computation thereof) shall be the amounts to be received by the holder thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Maker (or the performance thereof). The Maker acknowledges
that a breach by it of its obligations hereunder will cause irreparable and
material harm to the Holder and that the remedy at law for any such breach may
be inadequate. Therefore the Maker agrees that, in the event of any such breach
or threatened breach, the Holder shall be entitled, in addition to all other
available rights and remedies, at law or in equity, to seek and obtain such
equitable relief, including but not limited to an injunction restraining any
such breach or threatened breach, without the necessity of showing economic loss
and without any bond or other security being required.
Section 11.5 Enforcement Expenses. The Maker agrees to pay all costs
and expenses of enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses.
Section 11.6 Binding Effect. The obligations of the Maker and the
Holder set forth herein shall be binding upon the successors and assigns of each
such party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 11.7 Amendments. This Note may not be modified or amended in
any manner except in writing executed by the Maker and the Holder.
Section 11.8 Compliance with Securities Laws. The Holder of this
Note acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER
OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND
SCOPE REASONABLY SATISFACTORY TO THE MAKER THAT THIS
NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH STATE SECURITIES LAWS."
Section 11.9 Consent to Jurisdiction. Each of the Maker and the
Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the
United States District Court sitting in the Southern District of New York and
the courts of the State of New York located in New York county for the purposes
of any suit, action or proceeding arising out of or relating to this Note and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Maker and the Holder consents to process being served in any such suit,
30
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under the Purchase Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 4.9 shall affect or limit any right to serve
process in any other manner permitted by law. Each of the Maker and the Holder
hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to this Note shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.
Section 11.10 Parties in Interest. This Note shall be binding upon,
inure to the benefit of and be enforceable by the Maker, the Holder and their
respective successors and permitted assigns.
Section 11.11 Failure or Indulgence Not Waiver. No failure or delay
on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
Section 11.12 Maker Waivers. Except as otherwise specifically
provided herein, the Maker and all others that may become liable for all or any
part of the obligations evidenced by this Note, hereby waive presentment,
demand, notice of nonpayment, protest and all other demands' and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note, and do hereby consent to any number of renewals of extensions of the time
or payment hereof and agree that any such renewals or extensions may be made
without notice to any such persons and without affecting their liability herein
and do further consent to the release of any person liable hereon, all without
affecting the liability of the other persons, firms or Maker liable for the
payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising
its rights under this Note, or course of conduct relating hereto, shall operate
as a waiver of such rights or any other right of the Holder, nor shall any
waiver by the Holder of any such right or rights on any one occasion be deemed a
waiver of the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE
IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE
LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY
PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO
USE.
Section 4.13 Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on
Nasdaq, or (b) if the Common Stock is not listed on Nasdaq, a day on which the
Common Stock is traded on any other registered national stock exchange, or (c)
if the Common Stock is not traded on any other registered national stock
exchange, a day on which the Common Stock is traded on the OTC Bulletin Board,
31
or (d) if the Common Stock is not traded on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
or (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
MULTIBAND CORPORATION
By:_____________________________
Name:
Title:
32
EXHIBIT A
WIRE INSTRUCTIONS.
Payee: __________________________________________________________
Bank: __________________________________________________________
Address: ________________________________________________________
________________________________________________________
Bank No.: _______________________________________________________
Account No.: ___________________________________________________
Account Name: ___________________________________________________
33
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
Multiband Corporation (the "Maker") according to the conditions hereof, as of
the date written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion:_________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
__________________________________________________________________
34
Schedule I
Senior Indebtedness
1. Convergent Capital Partners I, L.P.; Amount of indebtedness outstanding:
$__________
2. Laurus Master Fund, Ltd.; Amount of indebtedness outstanding: $__________
3. Textron; Amount of indebtedness outstanding: $__________
35
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of November __, 2004, by and among Multiband Corporation, a
Minnesota corporation (the "Company"), and the purchasers listed on Schedule I
hereto (the "Purchasers").
This Agreement is being entered into pursuant to the Note Purchase
Agreement dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" means the date of the closing of the purchase and
sale of the Notes pursuant to the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value per
share.
"Effectiveness Date" means with respect to the Registration
Statement the earlier of the one hundred twentieth (120th) day following the
Closing Date or the date which is within three (3) business days of the date the
Commission informs the Company that the Commission (i) will not review the
Registration Statement or (ii) that the Company may request the acceleration of
the effectiveness of the Registration Statement and the Company makes such
request.
"Effectiveness Period" shall have the meaning set forth in Section
2.
"Event" shall have the meaning set forth in Section 7(d).
"Event Date" shall have the meaning set forth in Section 7(d).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means with respect to the Registration Statement no
later than forty-five (45) days following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
upon conversion of the Notes.
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
2. Resale Registration.
On or prior to the Filing Date the Company shall prepare and file
with the Commission a "resale" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-1 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form S-1,
in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall (i) not permit any securities other than
the Registrable Securities and the securities listed on Schedule II attached
hereto to be included in the Registration Statement and (ii) use its reasonable
best efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in any
event prior to the Effectiveness Date, and to keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction pursuant to Rule 144 as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect (the "Effectiveness
Period").
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-1 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-1, in which
case such registration shall be on another appropriate form in accordance
herewith) in accordance with the method or methods of distribution thereof as
specified by the Holders (except if otherwise directed by the Holders), and use
its reasonable best efforts to cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
less than three (3) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated therein by reference), the
Company shall (i) furnish to the Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Special Counsel, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
Special Counsel, to conduct a reasonable investigation within the meaning of the
Securities Act. Unless otherwise advised by outside counsel to the Company in
its reasonable judgment, the Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Special Counsel shall reasonably object in writing within two (2) Business Days
of its receipt thereof; provided, however, that Special Counsel may only object
to the filing of the Registration Statement if such objection relates
specifically to the Holders or may affect the timely effectiveness of the
Registration Statement.
38
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible, but in no event later
than ten (10) Business Days, to any comments or inquiries received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement, such correspondence from the Company showing the Company date stamp
evidencing the date of receipt; and (iv) comply in all material respects with
the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify any Special Counsel as promptly as possible (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company 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; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, 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.
(d) Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
39
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Holder or Special
Counsel may reasonably request. The Company hereby consents to the use of any
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates shall be free of all
restrictive legends so long as the Holder has complied with all applicable
securities laws in connection with such sale, including the prospectus delivery
requirements, and to enable such Registrable Securities to be in such
denominations and registered in such names as any Holder may request in writing
at least two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
40
(k) Use its reasonable best efforts to cause all Registrable
Securities relating to the Registration Statement to be listed on the Nasdaq
SmallCap Market or any other securities exchange, quotation system or market, if
any, on which similar securities issued by the Company are then listed as and
when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than forty-five (45) days after the end of
any 12-month period (or ninety (90) days after the end of any 12-month period if
such period is a fiscal year) commencing on the first day of the first fiscal
quarter of the Company after the Effectiveness Date, which statement shall
conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v),
3(c)(vi) or 3(n), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
41
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may (x) postpone or suspend filing
of a registration statement for a period not to exceed thirty (30) consecutive
days or (y) postpone or suspend effectiveness of a registration statement for a
period not to exceed twenty (20) consecutive days; provided that the Company may
not postpone or suspend effectiveness of a registration statement under this
Section 3(n) for more than forty-five (45) days in the aggregate during any
12-month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive twenty (20) day periods arising out of the
same set of facts, circumstances or transactions.
4. Registration Expenses.
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company, except as and to the extent specified in
this Section 4, shall be borne by the Company whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
Nasdaq SmallCap Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filing fees required to be paid to the National Association of Securities
Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the Holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, in the case of the Special Counsel,
to a maximum amount of $5,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, as well
as the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
42
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder or such other Indemnified Party
furnished in writing to the Company by such Holder expressly for use therein and
(ii) that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, allegedly untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of any
Holder, underwriter, broker or other Person acting on behalf of holders of the
Registrable Securities, from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Securities which are the subject
thereof, if a copy of such final prospectus had been made available to such
Person and such Holder, underwriter, broker or other Person acting on behalf of
Holders of the Registrable Securities and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Securities to such Person. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising solely out of or based solely upon
any untrue statement of a material fact contained in the Registration Statement,
any Prospectus, or any form of prospectus, or arising solely out of or based
solely upon any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder or other Indemnifying Party to the Company
specifically for inclusion in the Registration Statement or such Prospectus.
Notwithstanding anything to the contrary contained herein, each Holder shall be
liable under this Section 5(b) for only that amount as does not exceed the net
proceeds to such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
43
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel (which shall be reasonably acceptable to the
Indemnifying Party) that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party effect any settlement of any pending Proceeding
in respect of which any Indemnified Party is a party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative benefits received by
the Indemnifying Party on the one hand and the Indemnified Party on the other
from the offering of the Notes. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault, as applicable, of the Indemnifying Party and Indemnified Party
in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
44
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. Notwithstanding anything to the contrary contained herein,
the Holders shall be liable under this Section 5(d) for only that amount as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
6. Rule 144.
As long as any Holder owns any Shares or Warrants, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. As long as any Holder owns any Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any Holder
may reasonably request in writing, all to the extent required from time to time
to enable such Person to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
relating to such sale pursuant to Rule 144.
45
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its Subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(c) of the Purchase Agreement, neither the Company nor any of its
Subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company, under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders in such capacity pursuant hereto or
as disclosed on Schedule 2.1(c) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its security holders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Failure to File Registration Statement and Other Events. The
Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement has not been declared effective
on or prior to the Effectiveness Date, or (B) the Registration Statement is not
filed on or prior to the Filing Date, or (C) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act within three (3) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (D) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period, without being succeeded promptly by a subsequent Registration Statement
filed with and declared effective by the Commission, or (E) the Company has
breached Section 3(n) of this Agreement, or (F) trading in the Common Stock
shall be suspended or if the Common Stock is delisted from the Nasdaq SmallCap
46
Market for any reason for more than three (3) Business Days in the aggregate
(any such failure or breach being referred to as an "Event," and for purposes of
clauses (A) and (B) the date on which such Event occurs, or for purposes of
clause (C) the date on which such three (3) Business Day period is exceeded, or
for purposes of clause (D) after more than fifteen (15) Business Days, or for
purposes of clause (F) the date on which such three (3) Business Day period is
exceeded, being referred to as "Event Date"), the Company shall pay an amount as
liquidated damages to each Holder, payable in cash, equal to two percent (2%)
for the first calendar month or portion thereof of the Holder's initial
investment in the Notes from the Event Date and one and one quarter percent
(1.25%) for each calendar month thereafter or portion thereof from the
applicable Event Date until the Event is cured. Notwithstanding anything to the
contrary in this Section 7(d), if (I) any of the Events described in clauses
(A), (B) or (C) shall have occurred, (II) on or prior to the applicable Event
Date, the Company shall have exercised its rights under Section 3(n) hereof and
(III) the postponement or suspension permitted pursuant to such Section 3(n)
shall remain effective as of such applicable Event Date, then the applicable
Event Date shall be deemed instead to occur on the second (2nd) Business Day
following the termination of such postponement or suspension.
(e) Failure to Respond to Commission Inquiries/Comments. The Company
and the Purchasers agree that the Holders will suffer damages if the Company
breaches Section 3(b)(iii) of this Agreement. In the event the Company breaches
Section 3(b)(iii), the Company shall pay an amount as liquidated damages to each
Holder, payable in cash, equal to one percent (1%) for the first ten (10) day
period or portion thereof of the Holder's initial investment in the Notes and
two percent (2%) for each ten (10) day period thereafter or portion thereof
until such breach is cured.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by the
Company and the Holders of a majority of the Registrable Securities outstanding.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., New York
City time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., New York
City time, on any date and earlier than 11:59 p.m., New York City time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on Schedule I attached hereto, or with respect to the Company,
addressed to:
Multiband Corporation
9449 Science Center Drive
New Hope, MN 55428
Attention:
Tel. No.: (763) 504-3000
Fax No.: (763) 504-3060
47
with copies (which copies
shall not constitute notice
to the Company) to: ________________________
________________________
________________________
Attention:______________
Tel. No.: (___) ___-____
Fax No.: (___) ___-____
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Jenkens &
Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New York, New York 10174,
Attention: Christopher S. Auguste, Esq., Tel. No.: (212) 704-6000, Fax No.:
(212) 704-6288.
(h) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. Each Purchaser may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the
Registrable Securities if: (i) the Holder agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition of such securities by the transferee or assignees is restricted
under the Securities Act and applicable state securities laws, (iv) at or before
the time the Company receives the written notice contemplated by clause (ii) of
this Section, the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in compliance with all applicable securities laws and in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
48
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
49
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
MULTIBAND CORPORATION
By:_____________________________
Name:
Title:
PURCHASER
By:_____________________________
Name:
Title:
50
Schedule I
Section 11.13 List of Purchasers
51
Schedule II
Section 11.14 Other Securities Permitted to be Included on the
Registration Statement
Section 11.15 1. Shares of Common Stock issuable upon conversion of
the Series H Convertible Preferred Stock of the Company issued pursuant to the
Series H Convertible Preferred Stock Purchase Agreement dated as of November __,
2004 by and among the Company and the signatories thereto.
2. Shares of Common Stock issuable upon the exercise of warrants
issued to the placement agent in connection with the Series H Convertible
Preferred Stock Purchase Agreement.
52
SECURITY AGREEMENT
SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time in accordance herewith and including all attachments,
exhibits and schedules hereto, the "Agreement"), dated as of November _, 2004,
made by MULTIBAND CORPORATION, a Minnesota corporation (the "Grantor"), in favor
of the secured parties listed on Exhibit A to this Agreement (collectively, the
"Secured Parties").
WHEREAS, the Grantor has issued or will issue separate secured
convertible promissory notes to the Secured Parties (the "Notes") pursuant to a
Note Purchase Agreement, dated as of November _, 2004 (the "Purchase
Agreement"), by and among the Grantor and the Secured Parties; and
WHEREAS, it is a condition precedent to the Secured Parties making
the loans evidenced by the Notes that the Grantor execute and deliver to the
Secured Parties a security agreement providing for the grant to the Secured
Parties of a continuing security interest in all personal property and assets of
the Grantor, all in substantially the form hereof to secure all Obligations
(hereinafter defined).
NOW, THEREFORE, the parties agree as follows:
ARTICLE XII
Definitions
Section 12.1 Definition of Terms Used Herein. All capitalized terms
used herein and not defined herein have the respective meanings provided
therefor in the Purchase Agreement or the Notes, as applicable. All terms
defined in the Uniform Commercial Code (hereinafter defined) as in effect from
time to time and used herein and not otherwise defined herein (whether or not
such terms are capitalized) have the same definitions herein as specified
therein.
Section 12.2 Definition of Certain Terms Used Herein. As used
herein, the following terms have the following meanings:
"Collateral" means all accounts receivable of the Grantor and all
personal and fixture property of every kind and nature, including, without
limitation, all furniture, fixtures, equipment, raw materials, inventory, or
other goods, accounts, contract rights, rights to the payment of money,
insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents, instruments, securities and other investment
property, deposit accounts, rights to proceeds of letters of credit and all
general intangibles including, without limitation, all tax refund claims,
license fees, patents, patent licenses, patent applications, trademarks,
trademark licenses, trademark applications, trade names, copyrights, copyright
licenses, copyright applications, rights to sue and recover for past
infringement of patents, trademarks and copyrights, computer programs, computer
software, engineering drawings, service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature pursuant to which the
Grantor possesses, uses or has authority to possess or use property (whether
tangible or intangible) of others or others possess, use or have authority to
possess or use property (whether tangible or intangible) of the Grantor, and all
recorded data of any kind or nature, regardless of the medium of recording
including, without limitation, all books and records, software, writings, plans,
specifications and schematics; and all proceeds and products of each of the
foregoing.
53
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured, waived, or otherwise
remedied during such time) constitute an Event of Default.
"Event of Default" has the meaning specified in the Notes.
"Indemnitees" has the meaning specified in Section 7.5(b).
"Lien" means: (i) any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute, or contract, and including a
security interest, charge, claim, or lien arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes; (ii) to the extent not included
under clause (i), any reservation, exception, encroachment, easement,
right-of-way, covenant, condition, restriction, lease or other title exception
or encumbrance affecting property; and (iii) any contingent or other agreement
to provide any of the foregoing.
"Notes" has the meaning assigned to such term in the first recital
of this Agreement.
"Obligations" means all indebtedness, liabilities, obligations,
covenants and duties of the Grantor to the Secured Parties of every kind, nature
and description, direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise, now existing of hereafter arising under or in connection with the
Notes, this Agreement or the other Transaction Documents.
"Registered Organization" means an entity formed by filing a
registration document with a United States Governmental Authority, such as a
corporation, limited partnership or limited liability company.
"Security Interest" has the meaning specified in Section 2.1 of this
Agreement.
"Uniform Commercial Code" means the Uniform Commercial Code from
time to time in effect in the State of New York.
ARTICLE XIII
Security Interest
Section 13.1 Security Interest. As security for the payment and
performance, in full of the Obligations, and any extensions, renewals,
modifications or refinancings of the Obligations, the Grantor hereby bargains,
sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and
transfers to the Secured Parties, and hereby grants to the Secured Parties,
their successors and assigns, a security interest in, all of such Grantor's
right, title and interest in, to and under the Collateral (the "Security
Interest").
54
Section 13.2 No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Secured Parties to, or in any
way alter or modify, any obligation or liability of the Grantor with respect to
or arising out of the Collateral.
ARTICLE XIV
Representations and Warranties
The Grantor represents and warrants to the Secured Parties that:
Section 14.1 Title and Authority. The Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a security interest hereunder and has full power and authority to grant to
the Secured Parties the Security Interest and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other Person other than any consent or approval which
has been obtained.
Section 14.2 Filings; Actions to Achieve Perfection. Fully executed
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations containing
a description of the Collateral have been delivered to the Secured Parties for
filing in each United States governmental, municipal or other office specified
in Schedule A, which are all the filings, recordings and registrations that are
necessary to publish notice of and protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Secured Parties in
respect of all Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements or with
respect to the filing of amendments or new filings to reflect the change of the
Grantor's name, location, identity or corporate structure. The Grantor's name is
listed in the preamble of this Agreement identically to how it appears on its
articles of incorporation or other organizational documents.
Section 14.3 Validity and Priority of Security Interest. The
Security Interest constitutes (a) a legal and valid security interest in all the
Collateral securing the payment and performance of the Obligations, (b) subject
only to the filings described in Section 3.2 above and other previously
perfected security interests in the Collateral listed on Schedule 3.3 to this
Agreement ("Existing Liens"), a perfected security interest in all Collateral in
which a security interest may be perfected by filing, recording or registration
in the United States pursuant to the Uniform Commercial Code or other applicable
law in the United States (or any political subdivision thereof) and its
territories and possessions or any other country, state or nation (or any
political subdivision thereof). The Security Interest is and shall be
subordinate to any other Existing Lien on any of the Collateral.
Section 14.4 Absence of Other Liens. The Grantor's Collateral is
owned by the Grantor free and clear of any Lien other than Existing Liens.
Without limiting the foregoing and except as set forth on Schedule 3.4 to this
Agreement, the Grantor has not filed or consented to any filing described in
Schedule A in favor of any Person other than the Secured Parties, nor permitted
the granting or assignment of a security interest or permitted perfection of any
security interest in the Collateral in favor of any Person other than the
Secured Parties. The Grantor's having possession of all instruments and cash
55
constituting Collateral from time to time and the filing of financing statements
in the offices referred to in Schedule A hereto results in the perfection of
such security interest. Such security interest is, or in the case of Collateral
in which the Grantor obtain rights after the date hereof, will be, a perfected,
first priority security interest. Such notices, filings and all other action
necessary or desirable to perfect and protect such security interest have been
duly taken.
Section 14.5 Valid and Binding Obligation. This Agreement
constitutes the legal, valid and binding obligation of the Grantor, enforceable
against the Grantor in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in this Agreement may be limited by
applicable federal or state securities laws.
ARTICLE XV
Covenants
Section 15.1 Change of Name; Location of Collateral; Place of
Business, State of Formation or Organization.
The Grantor shall notify the Secured Parties in writing
promptly of any change (i) in its corporate name or in any trade
name used to identify it in the conduct of its business or in the
ownership of its properties, (ii) in the location of its chief
executive office, its principal place of business, any office in
which it maintains books or records relating to Collateral owned by
it (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure such that a filed
filing made under the Uniform Commercial Code becomes misleading or
(iv) in its Federal Taxpayer Identification Number. In extension of
the foregoing, the Grantor shall not effect or permit any change
referred to in the preceding sentence unless all filings have been
made under the Uniform Commercial Code or otherwise that are
required in order for the Secured Parties to continue at all times
following such change to have a valid, legal and perfected first
priority security interest in all the Collateral.
Without limiting Section 4.1(a), without the prior
written consent of the Secured Parties in each instance, the Grantor
shall not change its (i) principal residence, if it is an
individual, (ii) place of business, if it has only one place of
business and is not a Registered Organization, (iii) principal place
of business, if it has more than one place of business and is not a
Registered Organization, or (iv) state of incorporation, formation
or organization, if it is a Registered Organization.
Section 15.2 Records. The Grantor shall maintain, at its own cost
and expense, such complete and accurate records with respect to the Collateral
owned by it as is consistent with its current practices and in accordance with
such prudent and standard practices used in industries that are the same as or
similar to those in which the Grantor is engaged, but in any event to include
complete accounting records indicating all payments and proceeds received with
respect to any part of the Collateral, and, at such time or times as the Secured
Parties may reasonably request, promptly to prepare and deliver to the Secured
Parties a duly certified schedule or schedules in form and detail satisfactory
to the Secured Parties showing the identity, amount and location of any and all
Collateral.
56
Section 15.3 Periodic Certification; Notice of Changes. In the event
there should at any time be any change in the information represented and
warranted herein or in the documents and instruments executed and delivered in
connection herewith, the Grantor shall immediately notify the Secured Parties in
writing of such change (this notice requirement shall be in extension of and
shall not limit or relieve the Grantor of any other covenants hereunder).
Section 15.4 Protection of Security. The Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Secured Parties in the Collateral and the priority thereof against any Lien.
Section 15.5 Inspection and Verification. The Secured Parties and
such persons as the Secured Parties may reasonably designate shall have the
right to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantor's affairs with the officers of the
Grantor and its independent accountants and to verify under reasonable
procedures the validity, amount, quality, quantity, value, condition and status
of, or any other matter relating to, the Collateral, including, in the case of
collateral in the possession of any third Person, by contacting any account
debtor or third Person possessing such Collateral for the purpose of making such
a verification. Out-of-pocket expenses in connection with any inspections by
representatives of the Secured Parties shall be (a) the obligations of the
Grantor with respect to any inspection after the Secured Parties' demand payment
of the Notes or (b) the obligation of the Secured Parties in any other case.
Section 15.6 Taxes; Encumbrances. At their option, the Secured
Parties may discharge, Liens other than Existing Liens at any time levied or
placed on the Collateral and may pay for the maintenance and preservation of the
Collateral to the extent the Grantor fails to do so and the Grantor shall
reimburse the Secured Parties on demand for any payment made or any expense
incurred by the Secured Parties pursuant to the foregoing authorization;
provided, however, that nothing in this Section shall be interpreted as excusing
the Grantor from the performance of, or imposing any obligation on the Secured
Parties to cure or perform, any covenants or other obligation of the Grantor
with respect to any Lien or maintenance or preservation of Collateral as set
forth herein.
Section 15.7 Use and Disposition of Collateral. The Grantor shall
not make or permit to be made an assignment, pledge or hypothecation of any
Collateral or shall grant any other Lien in respect of the Collateral without
the prior written consent of the Secured Parties. The Grantor shall not make or
permit to be made any transfer of any Collateral and the Grantor shall remain at
all times in possession of the Collateral owned by it, other than with respect
to Existing Liens and other liens approved by the Secured Parties.
Section 15.8 Insurance/Notice of Loss. Within a reasonable period of
time following the date of this Agreement, Grantor, at its own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Collateral. In extension of the foregoing and without limitation, such
insurance shall be payable to the Secured Parties as loss payee under a
"standard" loss payee clause, and the Secured Parties shall be listed as an
"additional insured" on Grantor's general liability insurance. Such insurance
shall not be terminated, cancelled or not renewed for any reason, including
non-payment of insurance premiums, unless the insurer shall have provided the
Secured Parties at least 30 days prior written notice. Grantor irrevocably
57
makes, constitutes and appoints the Secured Parties (and all officers, employees
or agents designated by the Secured Parties) as its true and lawful agent and
attorney-in-fact for the purpose, at any time following the Secured Parties'
demand for payment of the Notes, of making, settling and adjusting claims in
respect of Collateral under policies of insurance, endorsing the name of Grantor
on any check, draft, instrument or other item of payment for the proceeds of
such policies of insurance and for making all determinations and decisions with
respect thereto. In the event that Grantor at any time or times shall fail to
obtain or maintain any of the policies of insurance required hereby or to pay
any premium in whole or part relating thereto, the Secured Parties may, without
waiving or releasing any obligation or liability of Grantor hereunder, in their
sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Secured Parties
deem advisable. All sums disbursed by the Secured Parties in connection and in
accordance with this Section, including reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall be payable upon demand, by
Grantor to the Secured Parties and shall be additional Obligations secured
hereby. Grantor shall promptly notify the Secured Parties if any material
portion of the Collateral owned or held by Grantor is damaged or destroyed. The
proceeds of any casualty insurance in respect of any casualty loss of any of the
Collateral shall (i) so long as the Secured Parties have not demanded payment of
the Notes, be disbursed to Grantor for direct application by Grantor solely to
the repair or replacement of Grantor's property so damaged or destroyed, and
(ii) in all other circumstances, be held by the Secured Parties as cash
collateral for the Obligations. The Secured Parties may, at their sole option,
disburse from time to time all or any part of such proceeds so held as cash
collateral, upon such terms and conditions as the Secured Parties may reasonably
prescribe, for direct application by the Secured Parties solely to the repair or
replacement of Grantor's property so damaged or destroyed, or Grantor may apply
all or any part of such proceeds to the Obligations.
Section 15.9 Legend. Grantor shall legend, in form and manner
satisfactory to the Secured Parties, its accounts and its books, records and
documents evidencing or pertaining thereto with an appropriate reference to the
fact that such accounts have been assigned to the Secured Parties and that the
Secured Parties have a security interest therein.
ARTICLE XVI
Further Assurances; Power of Attorney
Section 16.1 Further Assurances. Grantor shall, at its own expense,
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Secured Parties may
from time to time reasonably request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest
and the filing of any financing statements (including fixture filings) or other
documents in connection herewith or therewith. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Secured Parties, duly endorsed in a
manner satisfactory to the Secured Parties.
Section 16.2 Power of Attorney.
(a) Grantor hereby irrevocably (as a power coupled with an interest)
constitutes and appoints the Secured Parties (and all officers, employees or
agents designated by the Secured Parties), its attorney-in-fact with full power
of substitution, for the benefit of the Secured Parties,
58
(i) to take all appropriate action and to execute all
documents and instruments that may be necessary or desirable to
accomplish the purposes of this Agreement, and without limiting the
generality of the foregoing, Grantor hereby grants the power to file
one or more financing statements (including fixture filings),
continuation statements, filings with the United States Patent and
Trademark Office or United States Copyright Office (or any successor
office or any similar office in any other country) or other
documents for the purpose of perfecting, confirming, continuing,
enforcing or protecting the Security Interest granted by Grantor,
without the signature of Grantor, and naming Grantor as debtor and
the Secured Parties as secured party; and
(ii) at any time following the Secured Parties' demand
for payment of the Notes (i) to receive, endorse, assign and/or
deliver any and all notes, acceptances, checks, drafts, money orders
or other evidences of payment relating to the Collateral or any part
thereof; (ii) to demand, collect, receive payment of, give receipt
for and give discharges and releases of all or any of the
Collateral; (iii) to sign the name of Grantor on any invoice or bill
of lading relating to any of the Collateral; (iv) to send
verifications of accounts to any account debtor or any other Person
liable for an account; (v) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect or otherwise realize on all or any
of the Collateral or to enforce any rights in respect of any
Collateral; (vi) to settle, compromise, compound, adjust or defend
any actions, suits or proceeding relating to all or any of the
Collateral; and (vii) to use, sell, assign, transfer, pledge, make
any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to
carry out the purposes of this Agreement, as fully and completely as
though the Secured Parties were the absolute owner of the Collateral
for all purposes; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Secured Parties to
make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Secured Parties, or to
present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or
to become due in respect thereof or any property covered thereby,
and no action taken or omitted to be taken by the Secured Parties
with respect to the Collateral or any part thereof shall give rise
to any defense, counterclaim or offset in favor of Grantor or to any
claim or action against the Secured Parties.
(b) The provisions of this Article shall in no event relieve Grantor
of any of its obligations hereunder with respect to the Collateral or any part
thereof or impose any obligation on the Secured Parties to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Secured Parties of any other or further right
which it may have on the date of this Agreement or hereafter, whether hereunder,
by law or otherwise.
ARTICLE XVII
Remedies
Section 17.1 Remedies upon Default.
59
Upon the occurrence and during the continuance of an Event of
Default, Grantor agrees to deliver each item of its Collateral to the Secured
Parties on demand, and it is agreed that the Secured Parties shall have the
right to take any of or all the following actions at the same or different times
(but at all times subject to any Existing Liens): with or without legal process
and with or without prior notice or demand for performance, to take possession
of the Collateral and without liability for trespass to enter any premises where
the Collateral may be located for the purpose of taking possession of or
removing the Collateral, exercise Grantor's right to bill and receive payment
for completed work and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, Grantor agrees that the Secured
Parties shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the Secured
Parties shall deem appropriate. The Secured Parties shall be authorized at any
such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Secured Parties shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of Grantor, and Grantor hereby waives (to the extent permitted
by law) all rights of redemption, stay and appraisal which Grantor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.
The Secured Parties shall give Grantor ten (10) days' written notice
(which Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code) of the Secured Parties' intention to
make any sale of Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion thereof,
will first be offered for sale at such board or exchange. Any such public sale
shall be held at such time or times within ordinary business hours and at such
place or places as the Secured Parties may fix and state in the notice (if any)
of such sale. At any such sale, the Collateral, or portion thereof, to be sold
may be sold in one lot as an entirety or in separate parcels, as the Secured
Parties may (in their sole and absolute discretion) determine. The Secured
Parties shall not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Secured Parties may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Secured Parties until the sale price is paid by the purchaser
or purchasers thereof, but the Secured Parties shall not incur any liability in
case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. At any public (or, to the extent permitted by law,
private) sale made pursuant to this Section, the Secured Parties may bid for or
60
purchase, free (to the extent permitted by law) from any right of redemption,
stay, valuation or appraisal on the part of Grantor (all said rights being also
hereby waived and released to the extent permitted by law), the Collateral or
any part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to the Secured Parties from Grantor as a
credit against the purchase price, and the Secured Parties may, upon compliance
with the terms of sale, hold, retain and dispose of such property without
further accountability to Grantor therefor. For purposes hereof, a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof; the Secured Parties shall be free to carry out such sale
pursuant to such agreement and Grantor shall not be entitled to the return of
the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Secured Parties shall have entered into such an agreement all
Obligations have been paid in full. As an alternative to exercising the power of
sale herein conferred upon it, the Secured Parties may proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell the Collateral
or any portion thereof pursuant to a judgment or decree of a court or courts
having competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.
Section 17.2 Application of Proceeds. The Secured Parties shall
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
(a) FIRST, to the payment of all costs and expenses incurred by the
Secured Parties in connection with such collection or sale or otherwise in
connection with this Agreement or any of the Obligations, including all court
costs and the fees and expenses of its agents and legal counsel, and any other
costs or expenses incurred in connection with the exercise of any right or
remedy hereunder, under the Purchase Agreement, the Notes and the other
Transaction Documents;
(b) SECOND, to the payment in full of the Obligations; and
(c) THIRD, to Grantor, its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same, or as a court of competent
jurisdiction may otherwise direct.
Subject to the foregoing, the Secured Parties shall have absolute
discretion as to the time of application of such proceeds, moneys or balances in
accordance with this Agreement. Upon any sale of the Collateral by the Secured
Parties (including pursuant to a power of sale granted by statute or under a
judicial proceeding), the receipt of any such proceeds, moneys or balances by
the Secured Parties or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Secured Parties or such officer or
be answerable in any way for the misapplication thereof.
Section 17.3 Grant of License to Use Intellectual Property. For the
purpose of enabling the Secured Parties to exercise rights and remedies under
this Article at such time as the Secured Parties shall be lawfully entitled to
exercise such rights and remedies, Grantor hereby grants to the Secured Parties
an irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, license or sub-license any of the
Collateral consisting of intellectual property now owned or hereafter acquired
by Grantor, and wherever the same may be located, and including in such license
61
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Secured Parties
may be exercised, at the option of the Secured Parties, only following the
Secured Parties' demand for payment of the Notes.
ARTICLE XVIII
Miscellaneous
Section 18.1 Notices. All communications and notices hereunder to
the Grantor and to the Secured Parties shall (except as otherwise expressly
permitted herein) be in writing and delivered to the Grantor or the Secured
Parties, as the case may be, as provided in the Purchase Agreement.
Section 18.2 Security Interest Absolute. All rights of the Secured
Parties hereunder, the Security Interest and all obligations of Grantor
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Purchase Agreement, the Notes, any Transaction
Document or any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Purchase Agreement, the Notes, any Transaction Document or any other
agreement or instrument, (c) any exchange, release or non-perfection of any Lien
on other collateral, or any release or amendment or waiver of or consent under
or departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Grantor in respect of the Obligations
or this Agreement.
Section 18.3 Survival of Agreement. All covenants, agreements,
representations and warranties made by Grantor herein and in the certificates or
other instruments prepared or delivered in connection with or pursuant to this
Agreement shall be considered to have been relied upon by the Secured Parties
and shall survive the making of the loan and the execution and delivery to the
Secured Parties of the Notes, regardless of any investigation made by the
Secured Parties or on their behalf; and shall continue in full force and effect
until this Agreement shall terminate.
Section 18.4 Binding Effect; Several Agreement; Successors and
Assigns. This Agreement shall become effective as to Grantor when a counterpart
hereof executed on behalf of Grantor shall have been delivered to the Secured
Parties and a counterpart hereof shall have been executed on behalf of the
Secured Parties, and thereafter shall be binding upon Grantor and the Secured
Parties and their respective successors and assigns, and shall inure to the
benefit of Grantor, the Secured Parties and their respective successors and
assigns, except that Grantor shall not have the right to assign or transfer its
rights or obligations hereunder or any interest herein or in the Collateral (and
any such assignment or transfer shall be void) except as expressly contemplated
by this Agreement, the Purchase Agreement, the Notes or the other Transaction
Documents.
Section 18.5 Secured Parties' Fees and Expense; Indemnification.
62
Grantor agrees to pay upon demand to the Secured Parties
the amount of any and all reasonable expenses, including all
reasonable fees, disbursements and other charges of its counsel and
of any experts or agents, which the Secured Parties may incur in
connection with (i) the administration of this Agreement (including
the customary fees and charges of the Secured Parties for any audits
conducted by them or on their behalf with respect to the accounts
inventory), (ii) the custody or preservation of, or the sale of,
collection from or other realization upon any of the Collateral,
(iii) the exercise, enforcement or protection of any of the rights
of the Secured Parties hereunder or (iv) the failure of Grantor to
perform or observe any of the provisions hereof.
Grantor agrees to indemnify the Secured Parties and the
agent, contractors and employees of the Secured Parties
(collectively, the "Indemnitees") against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable fees, disbursements and other
charges of counsel, incurred by or asserted against any of them
arising out of, in any way connected with, or as a result of, the
execution, delivery, or performance of this Agreement or any
agreement or instrument contemplated hereby or any claim,
litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such
Indemnitee.
Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby. The provisions of this
Section shall remain operative and in full force and effect
regardless of the termination of this Agreement, the Purchase
Agreement, the Notes or the other Transaction Documents, the
consummation of the transactions contemplated hereby, the repayment
of any of the Obligations, the invalidity or unenforceability of any
term or provision of this Agreement, the Purchase Agreement, the
Notes or the other Transaction Documents, or any investigation made
by or on behalf of the Secured Parties. All amounts due under this
Section shall be payable on written demand therefor.
Section 18.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 18.7 Waivers; Amendment.
(a) No failure or delay of the Secured Parties in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Secured Parties hereunder and under the Purchase Agreement
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provisions of this Agreement, the Purchase
63
Agreement, the Notes or the other Transaction Documents or consent to any
departure by Grantor therefrom shall in any event be effective unless the same
shall be permitted by paragraph (b) below, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on Grantor in any case shall entitle Grantor to any other
or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements, in writing
entered into by the Secured Parties and Grantor.
Section 18.8 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE PURCHASE AGREEMENT OR THE
NOTES. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE PURCHASE AGREEMENT AND THE NOTES, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
Section 18.9 Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
Section 18.10 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract. Each party shall be
entitled to rely on a facsimile signature of any other party hereunder as if it
were an original.
64
Section 18.11 Jurisdiction; Consent to Service of Process.
Grantor hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of
America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to
this Agreement, the Purchase Agreement or the Notes, or for
recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by
law, in such Federal court. Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Secured Parties may otherwise have
to bring any action or proceeding relating to this Agreement, the
Purchase Agreement, the Notes or the other Transaction Documents
against Grantor or its properties in the courts of any jurisdiction.
Grantor hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this
Agreement, the Purchase Agreement, the Notes or the other
Transaction Documents in any New York State or Federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section
7.1. Nothing in this Agreement will affect the right of any party to
this Agreement to process in any other manner permitted by law.
Section 18.12 Termination. This Agreement and the Security Interest
shall terminate when all the Obligations have been paid in full, at which time
the Secured Parties shall execute and deliver to Grantor, at Grantor's expense,
all Uniform Commercial Code termination statements and similar documents which
Grantor shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section shall
be without recourse to or warranty by the Secured Parties.
Section 18.13 Prejudgment Remedy Waiver. Grantor acknowledges that
this Agreement, the Purchase Agreement, the Notes and the other Transaction
Documents evidence a commercial transaction and that it could, under certain
circumstances have the right, to notice of and hearing on the right of the
Secured Parties to obtain a prejudgment remedy, such as attachment, garnishment
and/or replevin, upon commencing any litigation against Grantor.
Notwithstanding, Grantor hereby waives all rights to notice, judicial hearing or
prior court order to which it might otherwise have the right under any state or
federal statute or constitution in connection with the obtaining by the Secured
Parties of any prejudgment remedy by reason of this Agreement, the Purchase
Agreement, the Notes, the other Transaction Documents or by reason of the
Obligations or any renewals or extensions of the same. Grantor also waives any
and all objection which it might otherwise assert, now or in the future, to the
exercise or use by the Secured Parties of any right of setoff, repossession or
self help as may presently exist under statute or common law.
65
IN WITNESS WHEREOF, the parties have duly executed this Security
Agreement as of the day and year first written above.
MULTIBAND CORPORATION
By:_____________________________
Name:
Title:
SECURED PARTY:
By:_____________________________
Name:
Title:
EXHIBIT A
SECURED PARTIES
SCHEDULE A
PLACES OF BUSINESS; CHIEF EXECUTIVE OFFICE; FILING LOCATIONS
State of Incorporation:
Minnesota
Chief Executive Office:
9449 Science Center Drive
New Hope, MN 55428
Filing Locations:
Secretary of State of the State of Minnesota
68
SCHEDULE 3.3
EXISTING LIENS
69
SCHEDULE 3.4
ABSENCE OF OTHER LIENS
70