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<SEC-DOCUMENT>0001065949-10-000168.txt : 20101005
<SEC-HEADER>0001065949-10-000168.hdr.sgml : 20101005
<ACCEPTANCE-DATETIME>20101005092351
ACCESSION NUMBER: 0001065949-10-000168
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20101004
ITEM INFORMATION: Entry into a Material Definitive Agreement
ITEM INFORMATION: Unregistered Sales of Equity Securities
ITEM INFORMATION: Financial Statements and Exhibits
FILED AS OF DATE: 20101005
DATE AS OF CHANGE: 20101005
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: IMAGING3 INC
CENTRAL INDEX KEY: 0001205181
STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844]
IRS NUMBER: 954451059
STATE OF INCORPORATION: CA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-50099
FILM NUMBER: 101107814
BUSINESS ADDRESS:
STREET 1: 3200 W. VALHALLA DRIVE
CITY: BURBANK
STATE: CA
ZIP: 91505
BUSINESS PHONE: 8182600930
MAIL ADDRESS:
STREET 1: 3200 W. VALHALLA DRIVE
CITY: BURBANK
STATE: CA
ZIP: 91505
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>i38koct52010.txt
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 4, 2010
IMAGING3, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA
-------------------------------------------------
(State or other jurisdiction of incorporation)
000-50099 95-4451059
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
3200 W. VALHALLA DR., BURBANK, CALIFORNIA 91505
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 260-0930
NOT APPLICABLE
-----------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions.
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR240.14d-2(b))
[_] Soliciting material pursuant to Rule 14a-12 under Exchange Act (17
CFR240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR240.13e-4(c))
<PAGE>
TABLE OF CONTENTS
SECTION 1. REGISTRANT'S BUSINESS AND OPERATIONS..............................1
Item 1.01 Entry into a Material Definitive Agreement..........1
SECTION 3. SECURITIES AND TRADING MARKETS....................................1
Item 3.02 Unregistered Sales of Equity Securities.............1
SECTION 9. FINANCIAL STATEMENTS AND EXHIBITS ................................2
SIGNATURES.....................................................................2
<PAGE>
SECTION 1. REGISTRANT'S BUSINESS AND OPERATIONS
- -----------------------------------------------
Item 1.01 Entry into a Material Definitive Agreement
----------------------------------------------------
Imaging3, Inc., a California corporation (the "Company"), entered into
a Securities Purchase Agreement (the "Purchase Agreement") on October 4, 2010,
with two institutional investors for the sale of common stock and warrants for
$1,000,000.22
The terms of the Purchase Agreement include the sale of 4,587,157
shares of common stock at $0.218 per share. The warrants include: (i) Series A
Warrants, which are immediately exercisable for a period of 5 years into
4,587,157 shares at $0.2725 per share; (ii) Series B Warrants, which are
immediately exercisable for a period of up to 18 months into 4,587,157 shares at
$0.218 per share; and (iii) Series C Warrants, which are immediately exercisable
for a period of 5 years into 4,587,157 shares at $0.2725 per share but only to
the extent that the Series B Warrants are exercised and only in the same
percentage that the Series B Warrants are exercised. All of such warrants
contain customary adjustments for corporate events such as reorganizations,
splits, dividends, and the exercise prices of all such warrants are subject to
full-ratchet anti-dilution adjustments in the event of additional issuances of
common stock below the exercise price then in effect.
The closing of the transaction is subject to the satisfaction of
customary closing conditions and is expected to occur on or before October 14,
2010. The net proceeds from the transaction will be used solely for working
capital purposes. In the Purchase Agreement, the Company agreed not to use the
proceeds to satisfy any debt, to redeem any of the Company's outstanding
securities or with respect to any litigation involving the Company.
At the closing of the transaction, the Company will enter into a
registration rights agreement (the "Registration Rights Agreement") with the
institutional investors. Pursuant to the Registration Rights Agreement, the
Company will be required to file a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange
Commission (the "SEC") covering the resale of the common stock to be sold and
the common stock underlying the warrants to be sold (the "Registration
Statement"). The Company will be required to pay all expenses incurred in
connection with the filing of the Registration Statement. The Company will also
be obligated to use its best efforts to file the Registration Statement within
30 days of the closing date of the transaction. In addition, the Company will be
obligated to use its best efforts to cause the SEC to declare the Registration
Statement effective within 90 days of the closing date of the transaction (or
120 days in the event that the Registration Statement is subject to review by
the SEC), and the Company will be required to pay certain negotiated cash
payments to the institutional investors in the event that the Registration
Statement is not filed within 30 days of such closing date or is not declared
effective within 90 days of such closing date (or 120 days in the event that the
Registration Statement is subject to review by the SEC).
SECTION 3. SECURITIES AND TRADING MARKETS
- -----------------------------------------
Item 3.02. Unregistered Sales of Equity Securities.
----------------------------------------------------
The disclosure provided in Item 1.01 of this Form 8-K is hereby
incorporated by reference into this Item 3.02.
Wharton Capital Partners, Ltd., a New York based investment banking
firm, acted as the placement agent for the Company in the transaction.
-1-
<PAGE>
The offer, issuance and sale by the Company of the shares of common
stock, warrants and the shares of common stock underlying the warrants in the
transaction have not been registered under the Securities Act and may not be
offered or sold without registration with the SEC under the Securities Act or
under an applicable exemption from the Securities Act.
The description of the documents in this current report on Form 8-K
does not purport to be complete and is qualified in its entirety by reference to
the Purchase Agreement, the form of Series A Warrant, the form of Series B
Warrant, the form of Series C Warrant and the form of the Registration Rights
Agreement, which are filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5,
respectively, to this report and are incorporated herein by reference.
SECTION 9. FINANCIAL STATEMENTS, PRO FORMA FINANCIALS & EXHIBITS
- ----------------------------------------------------------------
(a) Financial Statements of Business Acquired
Not Applicable.
(b) Pro Forma Financial Information
Not Applicable.
(c) Shell Company Transactions
Not Applicable.
(d) Exhibits
10.1. Securities Purchase Agreement dated October 4, 2010
10.2 Form of Series A Warrant
10.3 Form of Series B Warrant
10.4 Form of Series C Warrant
10.5 Form of Registration Rights Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IMAGING3, INC.
--------------
(Registrant)
Date: October 5, 2010
/s/ Dean Janes, Chief Executive Officer
---------------------------------------
Dean Janes, Chief Executive Officer
-2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>spagr.txt
<TEXT>
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
October 4, 2010, is by and among Imaging3, Inc., a California corporation with
headquarters located at 3200 W. Valhalla Drive, Burbank, California 91505 (the
"COMPANY"), and each of the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
RECITALS
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) the aggregate number of
shares of common stock, no par value, of the Company (the "COMMON STOCK"), set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be 4,587,157 shares of Common Stock and
shall collectively be referred to herein as the "COMMON SHARES"), (ii) a warrant
to initially acquire up to the aggregate number of shares of Common Stock set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers, in the
form attached hereto as EXHIBIT A (the "SERIES A WARRANTS") (as exercised,
collectively, the "SERIES A WARRANT SHARES"), (iii) a warrant to initially
acquire up to the aggregate number of shares of Common Stock set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers, in the form attached
hereto as EXHIBIT B (the "SERIES B WARRANTS") (as exercised, collectively, the
"SERIES B WARRANT SHARES") and (iv) a warrant to initially acquire up to the
aggregate number of shares of Common Stock set forth opposite such Buyer's name
in column (6) on the Schedule of Buyers, in the form attached hereto as EXHIBIT
C (the "SERIES C WARRANTS") (as exercised, collectively, the "SERIES C WARRANT
SHARES"). The Series A Warrants, the Series B Warrants and the Series C Warrants
are collectively referred to herein as the "WARRANTS." The Series A Warrant
Shares, the Series B Warrant Shares and the Series C Warrant Shares are
collectively referred to herein as the "WARRANT SHARES."
C. At the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement, in the form attached hereto as EXHIBIT D (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement), under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.
D. The Common Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the "SECURITIES."
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.
- --------------------------------------------------
(a) COMMON SHARES AND WARRANTS. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6 and 7 below, the Company shall issue
and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), the aggregate
number of Common Shares, as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers, along with (i) Series A Warrants to initially
acquire up to the aggregate number of Series A Warrant Shares as is set forth
opposite such Buyer's name in column (4) on the Schedule of Buyers, (ii) Series
B Warrants to initially acquire up to the aggregate number of Series B Warrant
Shares as is set forth opposite such Buyer's name in column (5) on the Schedule
of Buyers and (iii) Series C Warrants to initially acquire up to the aggregate
number of Series C Warrant Shares as is set forth opposite such Buyer's name in
column (6) on the Schedule of Buyers.
(b) CLOSING. The closing (the "CLOSING") of the purchase of the Common
Shares and the Warrants by the Buyers shall occur at the offices of Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601. The date
and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York time,
on the first (1st) Business Day on which the conditions to the Closing set forth
in Sections 6 and 7 below are satisfied or waived (or such later date as is
mutually agreed to by the Company and each Buyer). As used herein "BUSINESS DAY"
means any day other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to remain closed.
(c) PURCHASE PRICE. The aggregate purchase price for the Common Shares
and the Warrants to be purchased by each Buyer (the "PURCHASE PRICE") shall be
the amount set forth opposite such Buyer's name in column (7) on the Schedule of
Buyers.
(d) PAYMENT OF PURCHASE PRICE; DELIVERIES. On the Closing Date, (i)
each Buyer shall pay its respective Purchase Price to the Company for the Common
Shares and the Warrants to be issued and sold to such Buyer at the Closing, by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions (less, in the case of Cranshire (as defined below),
the amounts withheld pursuant to Section 4(g)) and (ii) the Company shall
deliver to each Buyer (A) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in Section 5(c)
hereof), evidencing the number of Common Shares such Buyer is purchasing as is
set forth opposite such Buyer's name in column (3) of the Schedule of Buyers,
and (B) (i) Series A Warrants to initially acquire up to the aggregate number of
Series A Warrant Shares as is set forth opposite such Buyer's name in column (4)
on the Schedule of Buyers, (ii) Series B Warrants to initially acquire up to the
aggregate number of Series B Warrant Shares as is set forth opposite such
Buyer's name in column (5) on the Schedule of Buyers and (iii) Series C Warrants
to initially acquire up to the aggregate number of Series C Warrant Shares as is
set forth opposite such Buyer's name in column (6) on the Schedule of Buyers, in
all cases, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
-2-
<PAGE>
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
- -----------------------------------------
Each Buyer, severally and not jointly, represents and warrants to the
Company with respect to only itself that:
(a) ORGANIZATION; AUTHORITY. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
(b) NO PUBLIC SALE OR DISTRIBUTION. Such Buyer (i) is acquiring its
Common Shares and Warrants and (ii) upon exercise of its Warrants, will acquire
the Warrant Shares issuable upon exercise thereof, in each case, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof in violation of applicable securities laws,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, by making the representations herein, such Buyer does not agree, or
make any representation or warranty, to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities in violation of applicable securities
laws.
(c) ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
(d) RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(e) INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
(f) NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
-3-
<PAGE>
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company (if requested by the Company) an opinion of counsel to
such Buyer, in a form reasonably acceptable to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act (or a successor rule thereto) (collectively, "RULE 144"); (ii) any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144, and further, if Rule 144 is not applicable, any
resale of the Securities under circumstances in which the seller (or the Person
(as defined below) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC promulgated thereunder; and (iii) neither the Company nor any other Person
is under any obligation to register the Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(h) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and constitutes the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with its terms, except as such enforceability may be limited
by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(i) NO CONFLICTS. The execution, delivery and performance by such Buyer
of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer, (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 to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
(j) CERTAIN TRADING ACTIVITIES. Such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer, engaged in any transactions in the securities of
the Company (including, without limitation, any Short Sales (as defined below)
involving the Company's securities) during the period commencing as of the time
that such Buyer was first contacted by the Placement Agent (as defined below)
-4-
<PAGE>
regarding the specific investment in the Company contemplated by this Agreement
and ending immediately prior to the execution of this Agreement by such Buyer.
"SHORT SALES" means all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the Securities Exchange Act of 1934, as amended (the "1934
ACT") (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
- ------------------------------------------------
The Company represents and warrants to each of the Buyers that:
(a) ORGANIZATION AND QUALIFICATION. Each of the Company and each of its
Subsidiaries are entities duly organized and validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted and as presently proposed to be conducted.
Each of the Company and each of its Subsidiaries is duly qualified as a foreign
entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company or any Subsidiary, either individually or taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or
(iii) the authority or ability of the Company to perform any of its obligations
under any of the Transaction Documents. Other than the Persons (as defined
below) set forth on Schedule 3(a), the Company has no Subsidiaries.
"SUBSIDIARIES" means any Person in which the Company, directly or indirectly,
(I) owns any of the outstanding capital stock or holds any equity or similar
interest of such Person or (II) controls or operates all or any part of the
business, operations or administration of such Person, and each of the
foregoing, is individually referred to herein as a "SUBSIDIARY."
(b) AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Common Shares, the issuance
of the Warrants and the reservation for issuance and issuance of the Warrant
Shares issuable upon exercise of the Warrants) have been duly authorized by the
Company's board of directors and (other than the filing with the SEC of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, a Form D with the SEC and any other filings as
may be required by any state securities agencies) no further filing, consent or
authorization is required by the Company, its board of directors or its
stockholders or other governing body. This Agreement has been, and the other
Transaction Documents will be prior to the Closing, duly executed and delivered
by the Company, and each constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
-5-
<PAGE>
of applicable creditors' rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. "TRANSACTION DOCUMENTS" means, collectively, this Agreement, the
Warrants, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments
entered into or delivered by any of the parties hereto in connection with the
transactions contemplated hereby and thereby, as may be amended from time to
time.
(c) ISSUANCE OF SECURITIES. The issuance of the Common Shares and the
Warrants are duly authorized and, upon issuance in accordance with the terms of
the Transaction Documents, will be validly issued, fully paid and non-assessable
and free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof. As of the Closing, the Company
shall have reserved from its duly authorized capital stock not less than 133% of
the maximum number of shares of Common Stock issuable upon exercise of the
Warrants (without taking into account any limitations on the exercise of the
Warrants set forth therein). The issuance of the Warrant Shares is duly
authorized, and upon exercise in accordance with the Warrants, the Warrant
Shares, when issued, will be validly issued, fully paid and non-assessable and
free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Subject to the accuracy of
the representations and warranties of the Buyers in this Agreement, the offer
and issuance by the Company of the Securities is exempt from registration under
the 1933 Act.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Common Shares, the Warrants and Warrant Shares and the
reservation for issuance of the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation (as defined below) (including,
without limitation, any certificates of designation contained therein) or other
organizational documents of the Company or any of its Subsidiaries, any capital
stock of the Company, or Bylaws (as defined below), (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 to which the Company or any of its Subsidiaries is a party or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, foreign, federal and state securities laws and
regulations and the rules and regulations of the OTC Bulletin Board (the
"PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected except, in the case of clause (ii) or (iii) above, to the extent
such violations that could not reasonably be expected to have a Material Adverse
Effect.
(e) CONSENTS. The Company is not required to obtain any consent from,
authorization or order of, or make any filing or registration with (other than
the filing with the SEC of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, a Form D with the
SEC and any other filings as may be required by any state securities agencies),
any court, governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any of its
-6-
<PAGE>
obligations under, or contemplated by, the Transaction Documents, in each case,
in accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain at or
prior to the Closing have been obtained or effected on or prior to the Closing
Date, and neither the Company nor any of its Subsidiaries are aware of any facts
or circumstances which might prevent the Company from obtaining or effecting any
of the registration, application or filings contemplated by the Transaction
Documents. The Company is not in violation of the requirements of the Principal
Market and has no knowledge of any facts or circumstances which could reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.
(f) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" (as
defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its
knowledge, a "beneficial owner" of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the 1934 Act). The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
(g) NO GENERAL SOLICITATION; PLACEMENT AGENT'S FEES. Neither the
Company, nor any of its Subsidiaries or 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) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for Persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. Other than Wharton Capital
Partners LTD. (the "PLACEMENT AGENT"), neither the Company nor any of its
Subsidiaries has engaged any placement agent or other agent in connection with
the offer or sale of the Securities.
(h) NO INTEGRATED OFFERING. None of the Company, its Subsidiaries or
any of their affiliates, nor any Person acting on 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 require registration of the
issuance of any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this offering of the
Securities to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated for quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on
their behalf will take any action or steps that would require registration of
the issuance of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with other offerings of securities of
the Company.
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(i) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Warrant Shares will increase in certain circumstances. The Company
further acknowledges that its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is
absolute and unconditional, regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
(j) APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any
distribution under a rights agreement) or other similar anti-takeover provision
under the Articles of Incorporation, Bylaws or other organizational documents or
the laws of the jurisdiction of its incorporation or otherwise which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of shares of Common Stock or a change in
control of the Company or any of its Subsidiaries.
(k) SEC DOCUMENTS; FINANCIAL STATEMENTS. During the two (2) years prior
to the date hereof, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Buyers or their respective representatives true, correct and complete
copies of each of the SEC Documents not available on the EDGAR system. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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 the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, 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 exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Buyers which is not included in the SEC Documents (including, without
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limitation, information referred to in Section 2(e) of this Agreement) contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light
of the circumstance under which they are or were made.
(l) ABSENCE OF CERTAIN CHANGES. Since the date of the Company's most
recent audited financial statements contained in a Form 10-K, except as
disclosed in the SEC Documents filed subsequent to such Form 10-K, there has
been no material adverse change and no material adverse development in the
business, assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any
of its Subsidiaries. Since the date of the Company's most recent audited
financial statements contained in a Form 10-K, neither the Company nor any of
its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets
outside of the ordinary course of business or (iii) made any material capital
expenditures, individually or in the aggregate. Neither the Company nor any of
its Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(l), "INSOLVENT" means, (I) with respect to the Company and its
Subsidiaries, on a consolidated basis, (i) the present fair saleable value of
the Company's and its Subsidiaries' assets is less than the amount required to
pay the Company's and its Subsidiaries' total Indebtedness (as defined below),
(ii) the Company and its Subsidiaries are unable to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (II) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company's or such Subsidiary's (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company's or such Subsidiary's remaining assets constitute
unreasonably small capital.
(m) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists, or is
reasonably expected to occur or exist, with respect to the Company, any of its
Subsidiaries or any of their respective businesses, properties, liabilities,
prospects, operations (including results thereof) or condition (financial or
otherwise) that (i) would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced, (ii) could have a material adverse effect
on any Buyer's investment hereunder or (iii) could have a Material Adverse
Effect.
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(n) CONDUCT OF BUSINESS; REGULATORY PERMITS. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under its
Articles of Incorporation, any certificate of designation, preferences or rights
of any other outstanding series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of formation
or certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. Since January 1, 2008, (i) the
Common Stock has been listed or designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and each
of its Subsidiaries possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(o) FOREIGN CORRUPT PRACTICES. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) SARBANES-OXLEY ACT. Except as disclosed in the SEC Documents, the
Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all
applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.
(q) TRANSACTIONS WITH AFFILIATES. Except as disclosed in the SEC
Documents, none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any of
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its Subsidiaries, any corporation, partnership, trust or other Person in which
any such officer, director, or employee has a substantial interest or is an
employee, officer, director, trustee or partner.
(r) EQUITY CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 500,000,000 shares of Common Stock,
of which 375,790,811 are issued and outstanding and no shares are reserved for
issuance pursuant to securities (other than the Common Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) no shares of preferred stock. No shares of Common Stock are held in
treasury. All of such outstanding shares are duly authorized and have been, or
upon issuance will be, validly issued and are fully paid and non-assessable.
82,776,328 shares of the Company's issued and outstanding Common Stock on the
date hereof are owned by Persons who are "affiliates" (as defined in Rule 405 of
the 1933 Act and calculated based on the assumption that only officers,
directors and holders of at least 10% of the Company's issued and outstanding
Common Stock are "affiliates" without conceding that any such Persons are
"affiliates" for purposes of federal securities laws) of the Company or any of
its Subsidiaries. To the Company's knowledge, except as disclosed in the SEC
Documents, no Person owns 10% or more of the Company's issued and outstanding
shares of Common Stock (calculated based on the assumption that all Convertible
Securities (as defined below), whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may be) taking
account of any limitations on exercise or conversion (including "blockers")
contained therein without conceding that such identified Person is a 10%
stockholder for purposes of federal securities laws). (i) None of the Company's
or any Subsidiary's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the Company
or any Subsidiary; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) except as disclosed in the SEC Documents, there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of its Subsidiaries; (v)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except pursuant to the Registration Rights Agreement); (vi) there
are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) neither the Company nor any Subsidiary has
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) neither the Company nor any of its
Subsidiaries have any liabilities or obligations required to be disclosed in the
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SEC Documents which are not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or could not have
a Material Adverse Effect. The Company has furnished to the Buyers true, correct
and complete copies of the Company's Certificate of Incorporation, as amended
and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.
(s) INDEBTEDNESS AND OTHER CONTRACTS. Neither the Company nor any of
its Subsidiaries (i) except as disclosed in the SEC Documents, has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
"capital leases" in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
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(z) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
(t) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company's or its Subsidiaries' officers or directors which is outside
of the ordinary course of business or individually or in the aggregate material
to the Company or any of its Subsidiaries. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, any of its Subsidiaries or any
current of former director or officer of the Company or any of its Subsidiaries.
The SEC has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the 1933
Act or the 1934 Act.
(u) INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
Subsidiary has any reason to believe that it will be unable to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or employs any member of a
union. The Company believes that its and its Subsidiaries' relations with their
respective employees are good. No executive officer (as defined in Rule 501(f)
promulgated under the 1933 Act) or other key employee of the Company or any of
its Subsidiaries has notified the Company or any such Subsidiary that such
officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer's employment with the Company or any such Subsidiary. No
executive officer or other key employee of the Company or any of its
Subsidiaries is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer or other key employee (as the case may be) does not subject the Company
or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all federal,
state, local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(w) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property, and have good and marketable title to
all personal property, owned by them which is material to the business of the
Company and its Subsidiaries, in each case, free and clear of all liens,
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encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company or any of its Subsidiaries.
(x) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, original works, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct their respective businesses as now conducted and
as presently proposed to be conducted. None of the Company's or its
Subsidiaries' Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. The Company has no knowledge of any
infringement by the Company or any of its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding their Intellectual
Property Rights. The Company is not aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
(y) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with all Environmental Laws (as defined below), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) SUBSIDIARY RIGHTS. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
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(aa) TAX STATUS. The Company and each of its Subsidiaries (i) has
timely made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has timely paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and its Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.
(bb) INTERNAL ACCOUNTING AND DISCLOSURE CONTROLS. Except as disclosed
in the SEC Documents, the Company and each of its Subsidiaries maintains
internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, including 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 generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as disclosed in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as disclosed in the SEC Documents, neither the Company nor
any of its Subsidiaries has received any notice or correspondence from any
accountant or other Person relating to any potential material weakness or
significant deficiency in any part of the internal controls over financial
reporting of the Company or any of its Subsidiaries.
(cc) OFF BALANCE SHEET ARRANGEMENTS. There is no transaction,
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.
(dd) INVESTMENT COMPANY STATUS. The Company is not, and upon
consummation of the sale of the Securities will not be, an "investment company,"
an affiliate of an "investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
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for, an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
(ee) ACKNOWLEDGEMENT REGARDING BUYERS' TRADING ACTIVITY. It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents in
accordance with the terms thereof, none of the Buyers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from effecting any transactions in
or with respect to (including, without limitation, purchasing or selling, long
and/or short) any securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold any of the Securities for any
specified term; (ii) any Buyer, and counterparties in "derivative" transactions
to which any such Buyer is a party, directly or indirectly, presently may have a
"short" position in the Common Stock which was established prior to such Buyer's
knowledge of the transactions contemplated by the Transaction Documents; and
(iii) each Buyer shall not be deemed to have any affiliation with or control
over any arm's length counterparty in any "derivative" transaction. The Company
further understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents pursuant to the Press
Release (as defined below) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
and/or number of the Warrant Shares deliverable with respect to the Securities
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing stockholders' equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement or any other
Transaction Document or any of the documents executed in connection herewith or
therewith.
(ff) MANIPULATION OF PRICE. Neither the Company nor any of its
Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the stabilization or manipulation of the price of any security
of the Company or any of its Subsidiaries to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities (other than the Placement
Agent), or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company or any of its
Subsidiaries.
(gg) U.S. REAL PROPERTY HOLDING CORPORATION. Neither the Company nor
any of its Subsidiaries is, or has ever been, and so long as any of the
Securities are held by any of the Buyers, shall become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Buyer's request.
(hh) REGISTRATION ELIGIBILITY. The Company is eligible to register the
Registrable Securities for resale by the Buyers using Form S-3 promulgated under
the 1933 Act.
(ii) TRANSFER TAXES. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the issuance, sale and transfer of the Securities to be sold to
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each Buyer hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.
(jj) BANK HOLDING COMPANY ACT. Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to regulation by the Board of Governors of the Federal Reserve
System (the "FEDERAL RESERVE"). Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
(kk) SHELL COMPANY STATUS. The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i).
(ll) PUBLIC UTILITY HOLDING ACT. None of the Company nor any of its
Subsidiaries is a "holding company," or an "affiliate" of a "holding company,"
as such terms are defined in the Public Utility Holding Act of 2005.
(mm) FEDERAL POWER ACT. None of the Company nor any of its Subsidiaries
is subject to regulation as a "public utility" under the Federal Power Act, as
amended.
(nn) NO ADDITIONAL AGREEMENTS. The Company does not have any agreement
or understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.
(oo) ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the Company nor any of its Subsidiaries nor, to the best of the Company's
knowledge (after reasonable inquiry of its officers and directors), any of the
officers, directors, employees, agents or other representatives of the Company
or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any Subsidiary is or has been affiliated or associated, has,
directly or indirectly, made or authorized any payment, contribution or gift of
money, property, or services, whether or not in contravention of applicable law,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries.
(pp) MONEY LAUNDERING. The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot Act of 2001
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, without limitation, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control, including, without limitation, (i) Executive Order 13224 of September
23, 2001 entitled, "Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism" (66 Fed. Reg. 49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.
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(qq) FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration (the "FDA") under the Federal Food, Drug and
Cosmetic Act, as amended, and the regulations thereunder (the "FDCA") that is
manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by
the Company or any of its Subsidiaries (each such product, a "PHARMACEUTICAL
PRODUCT"), such Pharmaceutical Product is being manufactured, packaged, labeled,
tested, distributed, sold and/or marketed by the Company or such Subsidiary (as
the case may be) in compliance with all applicable requirements under FDCA and
similar laws, rules and regulations relating to registration, investigational
use, pre-market clearance, licensure, or application approval, good
manufacturing practices, good laboratory practices, good clinical practices,
product listing, quotas, labeling, advertising, record keeping and filing of
reports, except where the failure to be in compliance would not have a Material
Adverse Effect. There is no pending, completed or, to the Company's knowledge,
threatened, action (including, without limitation, any lawsuit, arbitration, or
legal or administrative or regulatory proceeding, charge, complaint, or
investigation) against the Company or any of its Subsidiaries, and none of the
Company or any of its Subsidiaries has received any notice, warning letter or
other communication from the FDA or any other governmental entity, which (i)
contests the pre-market clearance, licensure, registration, or approval of, the
uses of, the distribution of, the manufacturing or packaging of, the testing of,
the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii)
withdraws its approval of, requests the recall, suspension, or seizure of, or
withdraws or orders the withdrawal of advertising or sales promotional materials
relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any
clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins
production at any facility of the Company or any of its Subsidiaries, (v) enters
or proposes to enter into a consent decree of permanent injunction with the
Company or any of its Subsidiaries or (vi) otherwise alleges any violation of
any laws, rules or regulations by the Company or any of its Subsidiaries. The
properties, business and operations of the Company subject to the jurisdiction
of the FDA have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations of the FDA. Neither
the Company nor any of its Subsidiaries has been informed by the FDA that the
FDA will prohibit the marketing, sale, license or use in the United States of
any product proposed to be developed, produced or marketed by the Company or any
of its Subsidiaries nor has the FDA expressed any concern as to approving or
clearing for marketing any product being developed or proposed to be developed
by the Company or any of its Subsidiaries.
(rr) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company or any of its Subsidiaries during the
twelve (12) months preceding the date of this Agreement did not at the time of
release contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. No event or circumstance has occurred or information exists with
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respect to the Company or any of its Subsidiaries or its or their business,
properties, liabilities, prospects, operations (including results thereof) or
conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
4. COVENANTS.
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(a) BEST EFFORTS. Each Buyer shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Section 6 of
this Agreement. The Company shall use its best efforts to timely satisfy each of
the conditions to be satisfied by it as provided in Section 7 of this Agreement.
(b) FORM D AND BLUE SKY. The Company shall file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to, qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. Without limiting
any other obligation of the Company under this Agreement, the Company shall
timely make all filings and reports relating to the offer and sale of the
Securities required under all applicable securities laws (including, without
limitation, all applicable federal securities laws and all applicable "Blue Sky"
laws), and the Company shall comply with all applicable federal, state and local
laws, statutes, rules, regulations and the like relating to the offering and
sale of the Securities to the Buyers.
(c) REPORTING STATUS. Until the date on which the Buyers shall have
sold all of the Registrable Securities (the "REPORTING PERIOD"), the Company
shall timely file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would no longer require or otherwise permit such
termination.
(d) USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Securities hereunder solely for general working capital purposes. Without
limiting the foregoing, none of such proceeds shall be used, directly or
indirectly, (i) for the satisfaction of any debt of the Company or any of its
Subsidiaries (other than payment of trade payables incurred after the date
hereof in the ordinary course of business of the Company and its Subsidiaries
and consistent with prior practices), (ii) for the redemption of any securities
of the Company or (iii) with respect to any litigation involving the Company or
any of its Subsidiaries (including, without limitation, (x) any litigation
disclosed in the SEC Documents or the settlement thereof or (y) the payment of
any costs or expenses related thereto).
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<PAGE>
(e) FINANCIAL INFORMATION. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(f) LISTING. The Company shall promptly secure the listing or
designation for quotation (as the case may be) of all of the Registrable
Securities upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed or designated for
quotation (as the case may be) (subject to official notice of issuance) (but in
no event later than the Closing Date) and shall maintain such listing or
designation for quotation (as the case may be) of all Registrable Securities
from time to time issuable under the terms of the Transaction Documents on such
national securities exchange or automated quotation system. The Company shall
maintain the Common Stock's listing or designation for quotation (as the case
may be) on the Principal Market, The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital
Market (each, an "ELIGIBLE MARKET"). Neither the Company nor any of its
Subsidiaries shall take any action which could be reasonably expected to result
in the delisting or suspension of the Common Stock on an Eligible Market. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) FEES. The Company shall reimburse Cranshire Capital, L.P.
("CRANSHIRE") or its designee(s) for all costs and expenses incurred by it or
its affiliates in connection with the transactions contemplated by the
Transaction Documents (including, without limitation, all legal fees and
disbursements in connection therewith, structuring, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence and regulatory filings in connection therewith) in a
non-accountable amount equal to $35,000, which amount shall be withheld by
Cranshire from its Purchase Price at the Closing or paid by the Company upon
termination of this Agreement on demand by Cranshire so long as such termination
did not occur as a result of a material breach by Cranshire of any of its
obligations hereunder (as the case may be). The Company shall be responsible for
the payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby (including, without limitation, any
fees payable to the Placement Agent, who is the Company's sole placement agent
in connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.
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(h) PLEDGE OF SECURITIES. Notwithstanding anything to the contrary
contained in this Agreement, the Company acknowledges and agrees that the
Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities 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. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.
(i) DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION. The
Company shall, on or before 9:30 a.m., New York time, (but in no event prior to
9:15 a.m., New York time) on the first (1st) Business Day after the date of this
Agreement, issue a press release (the "PRESS RELEASE") reasonably acceptable to
the Buyers disclosing all the material terms of the transactions contemplated by
the Transaction Documents. On or before 9:30 a.m., New York time, (but in no
event prior to 9:15 a.m., New York time) on the first (1st) Business Day after
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of Warrants and the form of the
Registration Rights Agreement) (including all attachments, the "8-K FILING").
From and after the issuance of the Press Release, the Company shall have
disclosed all material, non-public information (if any) delivered to any of the
Buyers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company shall not, and the
Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the issuance of the Press Release without the
express prior written consent of such Buyer. In the event of a breach of any of
the foregoing covenants or any of the covenants contained in Section 4(o) by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents (as determined in the reasonable good faith
judgment of such Buyer), in addition to any other remedy provided herein or in
the Transaction Documents, such Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information without the prior approval by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of the applicable Buyer, the Company shall not (and shall
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cause each of its Subsidiaries and affiliates to not) disclose the name of such
Buyer in any filing (other than the 8-K Filing), announcement, release or
otherwise. Notwithstanding anything contained in this Agreement to the contrary
and without implication that the contrary would otherwise be true, the Company
expressly acknowledges and agrees that no Buyer has had, and no Buyer shall have
(unless expressly agreed to by a particular Buyer after the date hereof in a
written definitive and binding agreement executed by the Company and such
particular Buyer), any duty of confidentiality with respect to, or a duty not to
trade on the basis of, any material, non-public information regarding the
Company or any of it Subsidiaries.
(j) ADDITIONAL REGISTRATION STATEMENTS. Until the Applicable Date (as
defined below) and at any time thereafter while any Registration Statement is
not effective or the prospectus contained therein is not available for use, the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Registrable Securities. "APPLICABLE DATE" means the
first date on which the resale by the Buyers of all Registrable Securities is
covered by one or more effective Registration Statements (as defined in the
Registration Rights Agreement) (and each prospectus contained therein is
available for use on such date).
(k) ADDITIONAL ISSUANCE OF SECURITIES. The Company agrees that for the
period commencing on the date hereof and ending on the date immediately
following the one hundred eighty (180) Trading Day (as defined in the Warrants)
anniversary of the Applicable Date (provided that such period shall be extended
by the number of days during such period and any extension thereof contemplated
by this proviso on which the Registration Statement is not effective or any
prospectus contained therein is not available for use) (the "RESTRICTED
PERIOD"), neither the Company nor any of its Subsidiaries shall directly or
indirectly issue, offer, sell, grant any option or right to purchase, or
otherwise dispose of (or announce any issuance, offer, sale, grant of any option
or right to purchase or other disposition of) any equity security or any
equity-linked or related security (including, without limitation, any "equity
security" (as that term is defined under Rule 405 promulgated under the 1933
Act), any Convertible Securities, any debt, any preferred stock or any purchase
rights (any such issuance, offer, sale, grant, disposition or announcement
(whether occurring during the Restricted Period or at any time thereafter) is
referred to as a "SUBSEQUENT PLACEMENT"). Notwithstanding the foregoing, this
Section 4(k) shall not apply in respect of the issuance of (i) (A) shares of
Common Stock or standard options to purchase Common Stock to directors, officers
or employees of the Company in their capacity as such pursuant to an Approved
Share Plan (as defined below), provided that (1) all such issuances (taking into
account the shares of Common Stock issuable upon exercise of such options) after
the date hereof pursuant to this clause (A) do not, in the aggregate, exceed
more than 18,789,540 shares of Common Stock (adjusted for stock splits, stock
combinations and other similar transactions) and (2) the exercise price of any
such options is not lowered, none of such options are amended to increase the
number of shares issuable thereunder and none of the terms or conditions of any
such options are otherwise materially changed in any manner that adversely
affects any of the Buyers; (B) shares of Common Stock issued upon the conversion
or exercise of Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Share Plan that are covered by
clause (A) above) issued prior to the date hereof, provided that the conversion
or exercise price of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Share Plan that
are covered by clause (A) above) is not lowered, none of such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Share Plan that are covered by clause (A) above) are amended to
increase the number of shares issuable thereunder and none of the terms or
conditions of any such Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Share Plan that are covered
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by clause (A) above) are otherwise materially changed in any manner that
adversely affects any of the Buyers; (C) the Common Shares and (D) the Warrant
Shares (each of the foregoing in clauses (A) through (D), collectively the
"EXCLUDED SECURITIES") or (ii) shares of unregistered Common Stock issued to
Richard Farkas in full satisfaction of all accrued and unpaid fees and amounts
owed by the Company and/or its Subsidiaries through the Closing Date to Richard
Farkas and his employees, partners and affiliates (the "COUNSEL SHARES").
"APPROVED SHARE PLAN" means any employee benefit plan which has been approved by
the board of directors of the Company prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee, officer or director for services provided
to the Company in their capacity as such. "CONVERTIBLE SECURITIES" means any
capital stock or other security of the Company or any of its Subsidiaries that
is at any time and under any circumstances directly or indirectly convertible
into, exercisable or exchangeable for, or which otherwise entitles the holder
thereof to acquire, any capital stock or other security of the Company
(including, without limitation, Common Stock) or any of its Subsidiaries.
(l) RESERVATION OF SHARES. So long as any of the Warrants 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 133% of the
maximum number of shares of Common Stock issuable upon exercise of all the
Warrants (without regard to any limitations on the exercise of the Warrants set
forth therein).
(m) CONDUCT OF BUSINESS. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(n) VARIABLE RATE TRANSACTION. Until none of the Warrants are
outstanding, the Company and each Subsidiary shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Placement involving a
Variable Rate Transaction. "VARIABLE RATE TRANSACTION" means a transaction in
which the Company or any Subsidiary (i) issues or sells any Convertible
Securities either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of, or quotations for,
the shares of Common Stock at any time after the initial issuance of such
Convertible Securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance of
such Convertible Securities or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock, other than pursuant to a customary "weighted
average" anti-dilution provision or (ii) enters into any agreement (including,
without limitation, an "equity line of credit" or an "at-the-market offering")
whereby the Company or any Subsidiary may sell securities at a future determined
price (other than standard and customary "preemptive" or "participation"
rights). Each Buyer shall be entitled to obtain injunctive relief against the
Company and its Subsidiaries to preclude any such issuance, which remedy shall
be in addition to any right to collect damages.
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(o) PARTICIPATION RIGHT. From the date hereof through the twelve (12)
month anniversary of the Applicable Date, neither the Company nor any of its
Subsidiaries shall, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4(o). The Company
acknowledges and agrees that the right set forth in this Section 4(o) is a right
granted by the Company, separately, to each Buyer.
(i) At least five (5) Trading Days prior to any proposed or
intended Subsequent Placement, the Company shall deliver to each Buyer
a written notice of its proposal or intention to effect a Subsequent
Placement (each such notice, a "PRE-NOTICE"), which Pre-Notice shall
not contain any information (including, without limitation, material,
non-public information) other than: (i) a statement that the Company
proposes or intends to effect a Subsequent Placement, (ii) a statement
that the statement in clause (i) above does not constitute material,
non-public information and (iii) a statement informing such Buyer that
it is entitled to receive an Offer Notice (as defined below) with
respect to such Subsequent Placement upon its written request. Upon the
written request of a Buyer within three (3) Trading Days after the
Company's delivery to such Buyer of such Pre-Notice, and only upon a
written request by such Buyer, the Company shall promptly, but no later
than one (1) Trading Day after such request, deliver to such Buyer an
irrevocable written notice (the "OFFER NOTICE") of any proposed or
intended issuance or sale or exchange (the "OFFER") of the securities
being offered (the "OFFERED SECURITIES") in a Subsequent Placement,
which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the
Persons (if known) to which or with which the Offered Securities are to
be offered, issued, sold or exchanged and (z) offer to issue and sell
to or exchange with such Buyer in accordance with the terms of the
Offer 100% of the Offered Securities, provided that the number of
Offered Securities which such Buyer shall have the right to subscribe
for under this Section 4(o) shall be (a) based on such Buyer's pro rata
portion of the aggregate number of Common Shares purchased hereunder by
all Buyers (the "BASIC AMOUNT"), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other Buyers as
such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the fifth
(5th) Business Day after such Buyer's receipt of the Offer Notice (the
"OFFER PERIOD"), setting forth the portion of such Buyer's Basic Amount
that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any,
that such Buyer elects to purchase (in either case, the "NOTICE OF
ACCEPTANCE"). If the Basic Amounts subscribed for by all Buyers are
less than the total of all of the Basic Amounts, then such Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for;
provided, however, if the Undersubscription Amounts subscribed for
exceed the difference between the total of all the Basic Amounts and
the Basic Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION
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AMOUNT"), such Buyer who has subscribed for any Undersubscription
Amount shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the
total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the
extent it deems reasonably necessary. Notwithstanding the foregoing, if
the Company desires to modify or amend the terms and conditions of the
Offer prior to the expiration of the Offer Period, the Company may
deliver to each Buyer a new Offer Notice and the Offer Period shall
expire on the fifth (5th) Business Day after such Buyer's receipt of
such new Offer Notice.
(iii) The Company shall have five (5) days from the expiration
of the Offer Period above (i) to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance
has not been given by a Buyer (the "REFUSED SECURITIES") pursuant to a
definitive agreement(s) (the "SUBSEQUENT PLACEMENT AGREEMENT"), but
only to the offerees described in the Offer Notice (if so described
therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b)
either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such
Subsequent Placement Agreement, which shall be filed with the SEC on a
Current Report on Form 8-K with such Subsequent Placement Agreement and
any documents contemplated therein filed as exhibits thereto.
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4(o)(iii) above), then such Buyer may,
at its sole option and in its sole discretion, reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance
to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to this Section 4(o)
prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. In the event that any Buyer
so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell
or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to
the Buyers in accordance with Section 4(o)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, such Buyer shall acquire
from the Company, and the Company shall issue to such Buyer, the number
or amount of Offered Securities specified in its Notice of Acceptance.
The purchase by such Buyer of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and
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such Buyer of a separate purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to such Buyer
and its counsel.
(vi) Any Offered Securities not acquired by a Buyer or other
Persons in accordance with this Section 4(o) may not be issued, sold or
exchanged until they are again offered to such Buyer under the
procedures specified in this Agreement.
(vii) The Company and each Buyer agree that if any Buyer
elects to participate in the Offer, neither the Subsequent Placement
Agreement with respect to such Offer nor any other transaction
documents related thereto (collectively, the "SUBSEQUENT PLACEMENT
DOCUMENTS") shall include any term or provision whereby such Buyer
shall be required to agree to any restrictions on trading as to any
securities of the Company or be required to consent to any amendment to
or termination of, or grant any waiver, release or the like under or in
connection with, any agreement previously entered into with the Company
or any instrument received from the Company.
(viii) Notwithstanding anything to the contrary in this
Section 4(o) and unless otherwise agreed to by such Buyer, the Company
shall either confirm in writing to such Buyer that the transaction with
respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in
either case in such a manner such that such Buyer will not be in
possession of any material, non-public information, by the fifth (5th)
Business Day following delivery of the Offer Notice. If by such fifth
(5th) Business Day, no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by such
Buyer, such transaction shall be deemed to have been abandoned and such
Buyer shall not be in possession of any material, non-public
information with respect to the Company or any of its Subsidiaries.
Should the Company decide to pursue such transaction with respect to
the Offered Securities, the Company shall provide such Buyer with
another Offer Notice in accordance with, and subject to, the terms of
this Section 4(o) and such Buyer will again have the right of
participation set forth in this Section 4(o). The Company shall not be
permitted to deliver more than one Offer Notice to such Buyer in any
sixty (60) day period, except as expressly contemplated by the last
sentence of Section 4(o)(ii).
(ix) The restrictions contained in this Section 4(o) shall not
apply in connection with the issuance of any (x) Excluded Securities or
(y) Counsel Shares. The Company shall not circumvent the provisions of
this Section 4(o) by providing terms or conditions to one Buyer that
are not provided to all.
(p) PASSIVE FOREIGN INVESTMENT COMPANY. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.
(q) CORPORATE EXISTENCE. So long as any Buyer owns any Warrants, the
Company shall not be party to any Fundamental Transaction (as defined in the
Warrants) unless the Company is in compliance with the applicable provisions
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governing Fundamental Transactions set forth in the Warrants.
(r) OUTSTANDING LEGAL FEES. The Company shall only issue Counsel Shares
to Richard Farkas in full satisfaction of all accrued and unpaid fees and
amounts owed by the Company and/or its Subsidiaries through the Closing Date to
Richard Farkas and his employees, partners and affiliates, provided that no
Counsel Shares shall be issued prior to the ninety (90) day anniversary of the
Closing Date. Without limiting any other provision of this Agreement, no cash
shall be used by the Company or any of its Subsidiaries to pay any of such fees
or amounts.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.
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(a) REGISTER. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Common Shares and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Common Shares and the Warrants have been issued (including the
name and address of each transferee), the number of Common Shares held by such
Person and the number of Warrant Shares issuable upon exercise of the Warrants
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.
(b) TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent and any subsequent transfer agent in a form
acceptable to each of the Buyers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS")
to issue certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Common Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
delivery of the Common Shares or the exercise of the Warrants (as the case may
be). The Company represents and warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that
the Securities shall otherwise be freely transferable on the books and records
of the Company, as applicable, to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(g), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or transfer
involves Common Shares or Warrant Shares sold, assigned or transferred pursuant
to an effective registration statement or in compliance with Rule 144, the
transfer agent shall issue such shares to such Buyer, assignee or transferee (as
the case may be) without any restrictive legend in accordance with Section 5(d)
below. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5(b)
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5(b), that each Buyer 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. The Company shall cause its counsel to issue the legal
opinion referred to in the Irrevocable Transfer Agent Instructions to the
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Company's transfer agent on each Effective Date (as defined in the Registration
Rights Agreement). Any fees (with respect to the transfer agent, counsel to the
Company or otherwise) associated with the issuance of such opinion or the
removal of any legends on any of the Securities shall be borne by the Company.
(c) LEGENDS. Each Buyer understands that the Securities have been
issued (or will be issued in the case of the Warrant Shares) pursuant to an
exemption from registration or qualification under the 1933 Act and applicable
state securities laws, and except as set forth below, the Securities shall bear
any legend as required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
(d) REMOVAL OF LEGENDS. Certificates evidencing Securities shall not be
required to contain the legend set forth in Section 5(c) above or any other
legend (i) while a registration statement (including a Registration Statement)
covering the resale of such Securities is effective under the 1933 Act, (ii)
following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are
eligible to be sold, assigned or transferred under Rule 144 (provided that a
Buyer provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that such Buyer provides the
Company with an opinion of counsel to such Buyer, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act
or (v) if such legend is not required under applicable requirements of the 1933
Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than two (2) Trading Days following the
delivery by a Buyer to the Company or the transfer agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
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necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from such Buyer as may be required above in this
Section 5(d), as directed by such Buyer, either: (A) provided that the Company's
transfer agent is participating in the DTC Fast Automated Securities Transfer
Program and such Securities are Common Shares or Warrant Shares, credit the
aggregate number of shares of Common Stock to which such Buyer shall be entitled
to such Buyer's or its designee's balance account with DTC through its
Deposit/Withdrawal at Custodian system or (B) if the Company's transfer agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver (via reputable overnight courier) to such Buyer, a certificate
representing such Securities that is free from all restrictive and other
legends, registered in the name of such Buyer or its designee (the date by which
such credit is so required to be made to the balance account of such Buyer's or
such Buyer's nominee with DTC or such certificate is required to be delivered to
such Buyer pursuant to the foregoing is referred to herein as the "REQUIRED
DELIVERY DATE").
(e) FAILURE TO TIMELY DELIVER; BUY-IN. If the Company fails to (i)
issue and deliver (or cause to be delivered) to a Buyer by the Required Delivery
Date a certificate representing the Securities so delivered to the Company by
such Buyer that is free from all restrictive and other legends or (ii) credit
the balance account of such Buyer's or such Buyer's nominee with DTC for such
number of shares of Common Shares or Warrant Shares so delivered to the Company,
then, in addition to all other remedies available to such Buyer, the Company
shall pay in cash to such Buyer on each day after the Required Delivery Date
that the issuance or credit of such shares is not timely effected an amount
equal to 2% of the product of (A) the sum of the number of shares of Common
Shares or Warrant Shares (as the case may be) not issued to such Buyer on a
timely basis and to which such Buyer is entitled and (B) the Closing Sale Price
(as defined in the Warrants) of the Common Stock on the Trading Day immediately
preceding the Required Delivery Date. In addition to the foregoing, if the
Company fails to so properly deliver such unlegended certificates or so properly
credit the balance account of such Buyer's or such Buyer's nominee with DTC by
the Required Delivery Date, and if on or after the Required Delivery Date such
Buyer purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Buyer of shares of Common
Stock that such Buyer anticipated receiving from the Company without any
restrictive legend, then, in addition to all other remedies available to such
Buyer, the Company shall, within three (3) Trading Days after such Buyer's
request and in such Buyer's sole discretion, either (i) pay cash to such Buyer
in an amount equal to such Buyer's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
PRICE"), at which point the Company's obligation to deliver such certificate or
credit such Buyer's balance account shall terminate and such shares shall be
cancelled, or (ii) promptly honor its obligation to deliver to such Buyer a
certificate or certificates or credit such Buyer's DTC account representing such
number of shares of Common Stock that would have been issued if the Company
timely complied with its obligations hereunder and pay cash to such Buyer in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Shares or Warrant Shares (as the case may be)
that the Company was required to deliver to such Buyer by the Required Delivery
Date times (B) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the Required Delivery Date.
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
- -------------------------------------------------
(a) The obligation of the Company hereunder to issue and sell the
Common Shares and the related Warrants to each Buyer at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the other
Transaction Documents to which it is a party and delivered the same to
the Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less, in the case of Cranshire, the
amounts withheld pursuant to Section 4(g)) for the Common Shares and
the related Warrants being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects as of the date when made
and as of the Closing Date as though originally made at that time
(except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date), and such Buyer
shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
- ----------------------------------------------------
(a) The obligation of each Buyer hereunder to purchase the Common
Shares and the related Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
(i) The Company shall have duly executed and delivered to such
Buyer (A) each of the other Transaction Documents and (B) the Common
Shares (in the number as is set forth across from such Buyer's name in
column (3) of the Schedule of Buyers) and the related Warrants (for the
number of Warrant Shares as is set forth across from such Buyer's name
in columns (4), (5) and (6) of the Schedule of Buyers) being purchased
by such Buyer at the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Richardson
& Associates, the Company's counsel, dated as of the Closing Date, in
the form acceptable to such Buyer.
(iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form acceptable to
such Buyer, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
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(iv) The Company shall have delivered to such Buyer a
certificate evidencing the formation and good standing of the Company
and each of its Subsidiaries in each such entity's jurisdiction of
formation issued by the Secretary of State (or comparable office) of
such jurisdiction of formation as of a date within ten (10) days of the
Closing Date.
(v) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign
corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts
business and is required to so qualify, as of a date within ten (10)
days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a
certified copy of the Articles of Incorporation as certified by the
Secretary of State of the Company's state of incorporation within ten
(10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, in the form acceptable to such Buyer, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i)
the resolutions consistent with Section 3(b) as adopted by the
Company's board of directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as
in effect at the Closing.
(viii) Each and every representation and warranty of the
Company shall be true and correct as of the date when made and as of
the Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which
shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all respects with the covenants,
agreements and conditions required to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form acceptable to such Buyer.
(ix) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding on the Closing Date immediately prior to the
Closing.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended,
as of the Closing Date, by the SEC or the Principal Market from trading
on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either
(A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for
the sale of the Securities, including without limitation, those
required by the Principal Market.
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(xii) 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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
(xiii) Since the date of execution of this Agreement, no event
or series of events shall have occurred that reasonably would have or
result in a Material Adverse Effect.
(xiv) The Company shall have obtained approval of the
Principal Market to list or designate for quotation (as the case may
be) the Common Shares and the Warrant Shares.
(xv) The Company shall have delivered to such Buyer such other
documents, instruments or certificates relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8. TERMINATION.
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In the event that the Closing shall not have occurred with respect to a
Buyer within ten (10) days after the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself
at any time on or after the close of business on such date without liability of
such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer's breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Common Shares and the
Warrants shall be applicable only to such Buyer providing such written notice,
provided further that no such termination shall affect any obligation of the
Company under this Agreement to reimburse such Buyer for the expenses described
in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.
9. MISCELLANEOUS.
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(a) GOVERNING LAW; JURISDICTION; JURY TRIAL. The parties hereby agree
that pursuant to 735 Illinois Compiled Statutes 105/5-5 they have chosen that
all questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in Chicago, Illinois, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
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venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof.
(c) HEADINGS; GENDER. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms "including,"
"includes," "include" and words of like import shall be construed broadly as if
followed by the words "without limitation." The terms "herein," "hereunder,"
"hereof" and words of like import refer to this entire Agreement instead of just
the provision in which they are found.
(d) SEVERABILITY. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf solely with respect to the matters contained herein and
therein, and this Agreement, the other Transaction Documents, the schedules and
exhibits attached hereto and thereto and the instruments referenced herein and
therein contain the entire understanding of the parties solely with respect to
the matters covered herein and therein; provided, however, nothing contained in
this Agreement or any other Transaction Document shall (or shall be deemed to)
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<PAGE>
(i) have any effect on any agreements any Buyer has entered into with the
Company or any of its Subsidiaries prior to the date hereof with respect to any
prior investment made by such Buyer in the Company or (ii) waive, alter, modify
or amend in any respect any obligations of the Company or any of its
Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in
any agreement entered into prior to the date hereof between or among the Company
and/or any of its Subsidiaries and any Buyer and all such agreements shall
continue in full force and effect. Except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. For clarification
purposes, the Recitals are part of this Agreement. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and each of the Buyers. No waiver shall be effective unless it is in
writing and signed by an authorized representative of the waiving party. 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 also is offered to all of the parties to the
Transaction Documents, all holders of Common Shares or all holders of the
Warrants (as the case may be). The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company, any
Subsidiary or otherwise. As a material inducement for each Buyer to enter into
this Agreement, the Company expressly acknowledges and agrees that (i) no due
diligence or other investigation or inquiry conducted by a Buyer, any of its
advisors or any of its representatives shall affect such Buyer's right to rely
on, or shall modify or qualify in any manner or be an exception to any of, the
Company's representations and warranties contained in this Agreement or any
other Transaction Document and (ii) unless a provision of this Agreement or any
other Transaction Document is expressly preceded by the phrase "except as
disclosed in the SEC Documents," nothing contained in any of the SEC Documents
shall affect such Buyer's right to rely on, or shall modify or qualify in any
manner or be an exception to any of, the Company's representations and
warranties contained in this Agreement or any other Transaction Document.
(f) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with an overnight courier service with next day delivery specified, in each
case, properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
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<PAGE>
If to the Company:
3200 W. Valhalla Drive
Burbank, California 91505
Telephone: (800) 900-9729
Facsimile: (818) 260-0445
Attention: Chief Executive Officer
With a copy (for informational purposes only) to:
Richardson & Associates 1453 3rd Street
Promenade #315 Santa Monica, CA 90401-3419
Telephone: (310) 393-9992 Facsimile: (310)
393-2004 Attention: Mark Richardson, Esq.
If to the Transfer Agent:
Mountain Share Transfer Company
1625 Abilene Dr.
Broomfield, Colorado 80020
Telephone: (303) 460-1149
Facsimile: (303) 438-9243
Attention: Beth Powell
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 3100
Chicago, Illinois 60601
Telephone: (312) 456-8400
Facsimile: (312) 456-8435
Attention: Peter H. Lieberman, Esq.
Todd A. Mazur, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change,
provided that Greenberg Traurig, LLP shall only be provided copies of notices
sent to Cranshire. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
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<PAGE>
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including, as contemplated below, any assignee of any of the Securities. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Buyers, including, without
limitation, by way of a Fundamental Transaction (as defined in the Warrants)
(unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Warrants). A Buyer may assign some or
all of its rights hereunder in connection with any transfer of any of its
Securities without the consent of the Company, in which event such assignee
shall be deemed to be a Buyer hereunder with respect to such assigned rights.
(h) 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, other than the Indemnitees referred to in Section 9(k).
(i) SURVIVAL. The representations, warranties, agreements and covenants
shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each holder of any Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the
Company contained in any of the Transaction Documents or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of any of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the
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<PAGE>
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents, except,
solely with respect to clause (c)(iv), to the extent such Indemnified Liability
arises solely from an Indemnitee's gross negligence. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.
(l) CONSTRUCTION. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty. Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for stock splits, stock
combinations and other similar transactions that occur with respect to the
Common Stock after the date of this Agreement.
(m) REMEDIES. Each Buyer and each holder of any Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek specific performance
and/or temporary, preliminary and permanent injunctive or other equitable relief
from any court of competent jurisdiction in any such case without the necessity
of proving actual damages and without posting a bond or other security.
(n) WITHDRAWAL RIGHT. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
(o) PAYMENT SET ASIDE; CURRENCY. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to any of the other
Transaction Documents or any of the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
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<PAGE>
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred. Until the day immediately following
the ninety (90) day anniversary of the Applicable Date, the Company shall not
effect any stock combination, reverse stock split or other similar transaction
(or make any public announcement or disclosure with respect to any of the
foregoing) without the prior written consent of each of the Buyers. Unless
otherwise expressly indicated, all dollar amounts referred to in this Agreement
and the other Transaction Documents are in United States Dollars ("U.S.
DOLLARS"), and all amounts owing under this Agreement and all other Transaction
Documents shall be paid in U.S. Dollars. All amounts denominated in other
currencies (if any) shall be converted in the U.S. Dollar equivalent amount in
accordance with the Exchange Rate on the date of calculation. "EXCHANGE RATE"
means, in relation to any amount of currency to be converted into U.S. Dollars
pursuant to this Agreement, the U.S. Dollar exchange rate as published in the
Wall Street Journal on the relevant date of calculation.
(p) JUDGMENT CURRENCY.
(i) If for the purpose of obtaining or enforcing judgment
against the Company in any court in any jurisdiction it becomes
necessary to convert into any other currency (such other currency being
hereinafter in this Section 9(p) referred to as the "JUDGMENT
CURRENCY") an amount due in U.S. Dollars under this Agreement or any
other Transaction Document, the conversion shall be made at the
Exchange Rate prevailing on the Trading Day immediately preceding: (1)
the date actual payment of the amount due, in the case of any
proceeding in the courts of Illinois or in the courts of any other
jurisdiction that will give effect to such conversion being made on
such date or (2) the date on which the foreign court determines, in the
case of any proceeding in the courts of any other jurisdiction (the
date as of which such conversion is made pursuant to this Section
9(p)(i) being hereinafter referred to as the "JUDGMENT CONVERSION
DATE").
(ii) If in the case of any proceeding in the court of any
jurisdiction referred to in Section 9(p)(i) above, there is a change in
the Exchange Rate prevailing between the Judgment Conversion Date and
the date of actual payment of the amount due, the applicable party
shall pay such adjusted amount as may be necessary to ensure that the
amount paid in the Judgment Currency, when converted at the Exchange
Rate prevailing on the date of payment, will produce the amount of U.S.
Dollars which could have been purchased with the amount of Judgment
Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.
(iii) Any amount due from the Company under this provision
shall be due as a separate debt and shall not be affected by judgment
being obtained for any other amounts due under or in respect of this
Agreement or any other Transaction Document.
(q) INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND RIGHTS. The
obligations of each Buyer under the Transaction Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of group or entity, or create a presumption that the Buyers are in
any way acting in concert or as a group or entity with respect to such
-38-
<PAGE>
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Buyers are not acting in concert
or as a group, and the Company shall not assert any such claim, with respect to
such obligations or the transactions contemplated by the Transaction Documents.
The decision of each Buyer to purchase Securities pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer's investment in the Securities or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.
The use of a single agreement to effectuate the purchase and sale of the
Securities contemplated hereby was solely in the control of the Company, not the
action or decision of any Buyer, and was done solely for the convenience of the
Company and not because it was required or requested to do so by any Buyer. It
is expressly understood and agreed that each provision contained in this
Agreement and in each other Transaction Document is between the Company and a
Buyer, solely, and not between the Company and the Buyers collectively and not
between and among the Buyers.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
COMPANY:
IMAGING3, INC.
By:/s/ Dean Janes
___________________________________
Name: Dean Janes
Title: Chief Executive Officer
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
BUYER:
CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Inc.
Its: General Partner
/s/ Mitchell P. Kopin
------------------------------
By: Mitchell P. Kopin
Its: President
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
BUYER:
FREESTONE ADVANTAGE PARTNERS, L.P.
/s/ Keith Goodman
------------------------------
By: Keith Goodman
Its: Common Manager
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6) (7) (8)
NUMBER NUMBER NUMBER
NUMBER OF OF OF LEGAL
ADDRESS AND FACSIMILE NUMBER OF SERIES A SERIES B SERIES C REPRESENTATIVE'S
COMMON WARRANT WARRANT WARRANT PURCHASE ADDRESS AND
BUYER SHARES SHARES SHARES SHARES PRICE FACSIMILE NUMBER
- ----------------------- ---------------------------- --------- --------- --------- --------- ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3100 Dundee Road, Suite 703 4,518,349 4,518,349 4,518,349 4,518,349 $985,000.08 Greenberg Traurig, LLP
Northbrook, Illinois 60062 77 W. Wacker Drive,
Attn: Mitchell P. Kopin Suite 3100
CRANSHIRE CAPITAL, L.P. Facsimile: (847) 562-9031 Chicago, Illinois 60601
Attention:
Peter H. Lieberman
Todd A. Mazur
Facsimile:(312)456-8435
FREESTONE ADVANTAGE 3100 Dundee Road, Suite 703
PARTNERS, LP Northbrook, Illinois 60062 68,808 68,808 68,808 68,808 $15,000.14
Attn: Mitchell P. Kopin
Facsimile: (847) 562-9031 Elected Not To Provide
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>seriesawarrant.txt
<TEXT>
[FORM OF SERIES A WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
IMAGING3, INC.
WARRANT TO PURCHASE COMMON STOCK
Series A Warrant No.:
--------------
Date of Issuance: October ___, 2010 ("ISSUANCE DATE")
Imaging3, Inc., a California corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [CRANSHIRE CAPITAL, L.P.][OTHER BUYERS], the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon exercise of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), [______________](1) (subject to adjustment
as provided herein) fully paid and nonassessable shares of Common Stock (as
defined below) (the "WARRANT SHARES"). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section
16. This Warrant is one of the Warrants to Purchase Common Stock (the "SPA
WARRANTS") issued pursuant to Section 1 of that certain Securities Purchase
Agreement, dated as of October 4, 2010, by and among the Company and the
investors (the "BUYERS") referred to therein (the "SECURITIES PURCHASE
Agreement").
- --------
1 100% warrant coverage.
<PAGE>
1. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part, by delivery (whether via facsimile or otherwise) of a
written notice, in the form attached hereto as EXHIBIT A (the "EXERCISE
NOTICE"), of the Holder's election to exercise this Warrant. Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver payment to the Company of an amount equal to the Exercise Price in
effect on the date of such exercise multiplied by the number of Warrant Shares
as to which this Warrant was so exercised (the "AGGREGATE EXERCISE PRICE") in
cash or via wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise
hereunder. Execution and delivery of an Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares. Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as cancellation of the original of this Warrant after delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day following the date on which the Company has received an Exercise
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of such Exercise Notice, in the form attached hereto as
EXHIBIT B, to the Holder and the Company's transfer agent (the "TRANSFER
AGENT"). On or before the third (3rd) Trading Day following the date on which
the Company has received such Exercise Notice, the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the Holder or, at the Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee, in
each case, sent by reputable overnight courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register in the name of the Holder or its designee (as indicated in the
applicable Exercise Notice), for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then, at the request of the
Holder, the Company shall as soon as practicable and in no event later than
three (3) Business Days after any exercise and at its own expense, issue and
deliver to the Holder (or its designee) a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
-2-
<PAGE>
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
and fees which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.
(b) EXERCISE PRICE. For purposes of this Warrant, "EXERCISE PRICE" means
$0.2725, subject to adjustment as provided herein.
(c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after receipt of the applicable Exercise Notice, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this Warrant
(as the case may be), then, in addition to all other remedies available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the aggregate number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days
after the Company's receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company's share register or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder (as the case may be), and if on or
after such third (3rd) Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder's exercise hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such shares of Common
Stock or credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon the Holder's exercise
hereunder (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock times (B) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable Exercise
Notice.
(d) CASHLESS EXERCISE. Notwithstanding anything contained herein to the
contrary (other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
defined in the Securities Purchase Agreement)) is not effective (or the
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prospectus contained therein is not available for use) for the resale by the
Holder of all of the Warrant Shares, then the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A X B) - (A X C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then
being exercised.
B= as applicable: (i) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the date of the applicable Exercise
Notice if such Exercise Notice is (1) both executed and delivered pursuant
to Section 1(a) hereof on a day that is not a Trading Day or (2) both
executed and delivered pursuant to Section 1(a) hereof on a Trading Day
prior to the opening of "regular trading hours" (as defined in Rule
600(b)(64) of Regulation NMS promulgated under the federal securities laws)
on such Trading Day, (ii) the Bid Price of the Common Stock as of the time
of the Holder's execution of the applicable Exercise Notice if such
Exercise Notice is executed during "regular trading hours" on a Trading Day
and is delivered within two (2) hours thereafter pursuant to Section 1(a)
hereof or (iii) the Closing Sale Price of the Common Stock on the date of
the applicable Exercise Notice if the date of such Exercise Notice is a
Trading Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of "regular trading hours"
on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.
(e) DISPUTES. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.
(f) LIMITATIONS ON EXERCISES. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.9% (the "MAXIMUM PERCENTAGE")
of the Common Stock. To the extent the above limitation applies, the
determination of whether this Warrant shall be exercisable (vis-a-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
of its affiliates) and of which such securities shall be exercisable (as among
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all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement.
(g) INSUFFICIENT AUTHORIZED SHARES. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
exercise of the SPA Warrants at least a number of shares of Common Stock equal
to the number of shares of Common Stock as shall from time to time be necessary
to effect the exercise of all of the SPA Warrants then outstanding (the
"REQUIRED RESERVE AMOUNT") (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for all the SPA Warrants then outstanding. Without
limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.
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2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.
(a) STOCK DIVIDENDS AND SPLITS. Without limiting any provision of Section
2(b) or Section 4, if the Company, at any time on or after the date of the
Securities Purchase Agreement, (i) pays a stock dividend on one or more classes
of its then outstanding shares of Common Stock or otherwise makes a distribution
on any class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.
(b) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on
or after the date of the Securities Purchase Agreement, the Company issues or
sells, or in accordance with this Section 2 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding any
Excluded Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such
Exercise Price then in effect is referred to as the "APPLICABLE PRICE") (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Exercise Price under
this Section 2(b), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(b)(i), the "lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Options or upon conversion, exercise or exchange of
any Convertible Securities issuable upon exercise of any such Option" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
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consideration (if any) received or receivable by the Company with respect
to any one share of Common Stock upon the granting or sale of such Option,
upon exercise of such Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option and (y) the
lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option minus (2) the sum of all amounts paid or
payable to the holder of such Option (or any other Person) upon the
granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option plus the value of any other consideration received
or receivable by, or benefit conferred on, the holder of such Option (or
any other Person). Except as contemplated below, no further adjustment of
the Exercise Price shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(b)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange thereof" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to one share of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exercise or exchange of such Convertible
Security and (y) the lowest conversion price set forth in such Convertible
Security for which one share of Common Stock is issuable upon conversion,
exercise or exchange thereof minus (2) the sum of all amounts paid or
payable to the holder of such Convertible Security (or any other Person)
upon the issuance or sale of such Convertible Security plus the value of
any other consideration received or receivable by, or benefit conferred on,
the holder of such Convertible Security (or any other Person). Except as
contemplated below, no further adjustment of the Exercise Price shall be
made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(b), except as contemplated
below, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase or
exercise price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price in effect at the
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time of such increase or decrease shall be adjusted to the Exercise Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased purchase
price, additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of
this Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible Security
and the shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
increase or decrease. No adjustment pursuant to this Section 2(b) shall be
made if such adjustment would result in an increase of the Exercise Price
then in effect.
(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Option or
Convertible Security is issued in connection with the issuance or sale or
deemed issuance or sale of any other securities of the Company, together
comprising one integrated transaction, (x) such Option or Convertible
Security (as applicable) will be deemed to have been issued for
consideration equal to the Black Scholes Consideration Value thereof and
(y) the other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration
received by the Company minus (II) the Black Scholes Consideration Value of
each such Option or Convertible Security (as applicable). If any shares of
Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount of consideration received by
the Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received by
the Company for such securities will be the arithmetic average of the VWAPs
of such security for each of the five (5) Trading Days immediately
preceding the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity,
the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as
is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the
Company and the Holder. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.
(v) RECORD DATE. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
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dividend or other distribution payable in shares of Common Stock, Options
or in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase (as the case may be).
(c) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment (without regard to any limitations on exercise
contained herein).
(d) OTHER EVENTS. In the event that the Company (or any Subsidiary (as
defined in the Securities Purchase Agreement)) shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors shall in good faith determine and
implement an appropriate adjustment in the Exercise Price and the number of
Warrant Shares (if applicable) so as to protect the rights of the Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the Company.
(e) CALCULATIONS. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
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of this Warrant (without regard to any limitations on exercise hereof, including
without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate in any such Distributions would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
Distribution to such extent) and such Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) PURCHASE RIGHTS. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Maximum Percentage) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
(b) FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents (as defined in the Securities Purchase Agreement) in
accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, which is exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
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the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the consummation of such Fundamental Transaction) and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market. Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of the applicable
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of each Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such
items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of publicly traded common stock
(or its equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of each Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the applicable
Fundamental Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property (except
such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of the applicable Fundamental Transaction had this Warrant been
exercised immediately prior to the applicable Fundamental Transaction (without
regard to any limitations on the exercise of this Warrant). Provision made
pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Holder.
(c) BLACK SCHOLES VALUE. Notwithstanding the foregoing and the provisions
of Section 4(b) above, in the event of any announcement of any Fundamental
Transaction, then, at the request of the Holder delivered at any time after the
announcement of such Fundamental Transaction through the date that is ninety
(90) days after the consummation of such Fundamental Transaction, the Company or
the Successor Entity (as the case may be) shall purchase this Warrant from the
Holder on the date of such request by paying to the Holder cash in an amount
equal to the Black Scholes Value.
(d) APPLICATION. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
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exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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 of this Warrant, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of
share capital of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Holder, solely in its capacity as
the Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which it is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the stockholders
of the Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE OF WARRANTS.
(a) TRANSFER OF WARRANT. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
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accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) EXCHANGEABLE FOR MULTIPLE WARRANTS. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of
Common Stock shall be given.
(d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
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<PAGE>
provided to the Holder and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving
party.
10. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
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<PAGE>
legal action against the Company in any other jurisdiction to collect on the
Company's obligations to the Holder or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value or
the arithmetic calculation of the Warrant Shares (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price, the Bid Price or fair
market value or the number of Warrant Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted to the Company or the Holder (as the case may be), then the Company
shall, within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price, the Closing Sale Price, the Bid Price or
fair market value (as the case may be) to an independent, reputable investment
bank selected by the Holder or (b) the disputed arithmetic calculation of the
Warrant Shares to the Company's independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank's or accountant's determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises and the like (and the computation thereof) shall be the
-15-
<PAGE>
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company's compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with
Section 2 hereof). The issuance of shares and certificates for shares as
contemplated hereby upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder or its agent on its
behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) "BID PRICE" means, for any security as of the particular time of
determination, the bid price for such security on the Principal Market as
reported by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
as of such time of determination, or if the foregoing does not apply, the bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg as of such time of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of determination, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the particular time
of determination on any of the foregoing bases, the Bid Price of such security
as of such time of determination shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
(b) "BLACK SCHOLES CONSIDERATION VALUE" means the value of the applicable
Option or Convertible Security (as the case may be) as of the date of issuance
thereof calculated using the Black Scholes Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing Sale Price of the Common Stock on the Trading Day immediately
-16-
<PAGE>
preceding the public announcement of the execution of definitive documents with
respect to the issuance of such Option or Convertible Security (as the case may
be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible Security (as
the case may be) as of the date of issuance of such Option or Convertible
Security (as the case may be) and (iii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg (determined utilizing a 365 day annualization factor) as of the
Trading Day immediately following the date of issuance of such Option or
Convertible Security (as the case may be).
(c) "BLACK SCHOLES VALUE" means the value of the unexercised portion of
this Warrant remaining on the date of the Holder's request pursuant to Section
4(c), which value is calculated using the Black Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg utilizing (i) an underlying price
per share equal to the greater of (1) the highest Closing Sale Price of the
Common Stock during the period beginning on the Trading Day immediately
preceding the announcement of the applicable Fundamental Transaction and ending
on the Trading Day of the Holder's request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the applicable Fundamental
Transaction (if any) plus the value of the non-cash consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the Holder's request pursuant to Section 4(c) and (2) the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365 day annualization factor) as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction.
(d) "BLOOMBERG" means Bloomberg, L.P.
(e) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(f) "CLOSING SALE PRICE" means, for any security as of any date, the last
closing trade price for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing trade price, then the last trade price
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last trade price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last trade price is
reported for such security by Bloomberg, the average of the ask prices of any
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
-17-
<PAGE>
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 13. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
(g) "COMMON STOCK" means (i) the Company's shares of common stock, no par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.
(h) "CONVERTIBLE SECURITIES" means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(i) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.
(j) "EXPIRATION DATE" means the date that is the fifth (5th) anniversary of
the Issuance Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(k) "FUNDAMENTAL TRANSACTION" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) (I) reorganize, recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination, reverse stock
split or other similar transaction involving the Common Stock (including,
without limitation, any public announcement or disclosure of (x) any potential,
possible or actual stock combination, reverse stock split or other similar
-18-
<PAGE>
transaction involving the Common Stock or (y) board or stockholder approval
thereof, or the intention of the Company to seek board or stockholder approval
of any stock combination, reverse stock split or other similar transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.
(l) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(m) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(n) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
(o) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Holder,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.
(q) "TRADING DAY" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
(r) "VOTING STOCK" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
(s) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar
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<PAGE>
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.
IMAGING3, INC.
By:____________________________________
Name:
Title:
-21-
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
IMAGING3, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California corporation (the "COMPANY"), evidenced by Series A Warrant
No. _______ (the "WARRANT"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Holder intends that payment of the Exercise
Price shall be made as:
____________ a "CASH EXERCISE" with respect to ________________ Warrant
Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to _______________ Warrant
Shares.
In the event that the Holder has elected a Cashless Exercise with respect
to some or all of the Warrant Shares to be issued pursuant hereto, the Holder
hereby represents and warrants that (i) this Exercise Notice was executed by the
Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if
applicable, the Bid Price as of such time of execution of this Exercise Notice
was $________.
2. PAYMENT OF EXERCISE PRICE. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to Holder, or its
designee or agent as specified below, __________ Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, to the following address:
________________________________
________________________________
________________________________
________________________________
Date: _______________ __, ______
________________________________
Name of Registered Holder
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.
IMAGING3, INC.
By:_________________________________
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>seriesbwarrant.txt
<TEXT>
[FORM OF SERIES B WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
IMAGING3, INC.
WARRANT TO PURCHASE COMMON STOCK
Series B Warrant No.:
--------------
Date of Issuance: October ___, 2010 ("ISSUANCE DATE")
Imaging3, Inc., a California corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [CRANSHIRE CAPITAL, L.P.][OTHER BUYERS], the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon exercise of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), [______________]1 (subject to adjustment as
provided herein) fully paid and nonassessable shares of Common Stock (as defined
below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 16. This
Warrant is one of the Warrants to Purchase Common Stock (the "SPA WARRANTS")
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of October 4, 2010, by and among the Company and the investors (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE Agreement").
- --------
1 100% warrant coverage.
<PAGE>
1. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part, by delivery (whether via facsimile or otherwise) of a
written notice, in the form attached hereto as EXHIBIT A (the "EXERCISE
NOTICE"), of the Holder's election to exercise this Warrant. Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver payment to the Company of an amount equal to the Exercise Price in
effect on the date of such exercise multiplied by the number of Warrant Shares
as to which this Warrant was so exercised (the "AGGREGATE EXERCISE PRICE") in
cash or via wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise
hereunder. Execution and delivery of an Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares. Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as cancellation of the original of this Warrant after delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day following the date on which the Company has received an Exercise
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of such Exercise Notice, in the form attached hereto as
EXHIBIT B, to the Holder and the Company's transfer agent (the "TRANSFER
AGENT"). On or before the third (3rd) Trading Day following the date on which
the Company has received such Exercise Notice, the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the Holder or, at the Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee, in
each case, sent by reputable overnight courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register in the name of the Holder or its designee (as indicated in the
applicable Exercise Notice), for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then, at the request of the
Holder, the Company shall as soon as practicable and in no event later than
three (3) Business Days after any exercise and at its own expense, issue and
deliver to the Holder (or its designee) a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
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number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
and fees which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.
(b) EXERCISE PRICE. For purposes of this Warrant, "EXERCISE PRICE" means
$0.218, subject to adjustment as provided herein.
(c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after receipt of the applicable Exercise Notice, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this Warrant
(as the case may be), then, in addition to all other remedies available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the aggregate number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days
after the Company's receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company's share register or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder (as the case may be), and if on or
after such third (3rd) Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder's exercise hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such shares of Common
Stock or credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon the Holder's exercise
hereunder (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock times (B) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable Exercise
Notice.
(d) CASHLESS EXERCISE. Notwithstanding anything contained herein to the
contrary (other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
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defined in the Securities Purchase Agreement)) is not effective (or the
prospectus contained therein is not available for use) for the resale by the
Holder of all of the Warrant Shares, then the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A X B) - (A X C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is
then being exercised.
B= as applicable: (i) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable
Exercise Notice if such Exercise Notice is (1) both executed and
delivered pursuant to Section 1(a) hereof on a day that is not a
Trading Day or (2) both executed and delivered pursuant to Section
1(a) hereof on a Trading Day prior to the opening of "regular trading
hours" (as defined in Rule 600(b)(64) of Regulation NMS promulgated
under the federal securities laws) on such Trading Day, (ii) the Bid
Price of the Common Stock as of the time of the Holder's execution of
the applicable Exercise Notice if such Exercise Notice is executed
during "regular trading hours" on a Trading Day and is delivered
within two (2) hours thereafter pursuant to Section 1(a) hereof or
(iii) the Closing Sale Price of the Common Stock on the date of the
applicable Exercise Notice if the date of such Exercise Notice is a
Trading Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of "regular trading
hours" on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) DISPUTES. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.
(f) LIMITATIONS ON EXERCISES. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.9% (the "MAXIMUM PERCENTAGE")
of the Common Stock. To the extent the above limitation applies, the
determination of whether this Warrant shall be exercisable (vis-a-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
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of its affiliates) and of which such securities shall be exercisable (as among
all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement.
(g) INSUFFICIENT AUTHORIZED SHARES. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
exercise of the SPA Warrants at least a number of shares of Common Stock equal
to the number of shares of Common Stock as shall from time to time be necessary
to effect the exercise of all of the SPA Warrants then outstanding (the
"REQUIRED RESERVE AMOUNT") (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for all the SPA Warrants then outstanding. Without
limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.
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2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.
(a) STOCK DIVIDENDS AND SPLITS. Without limiting any provision of Section
2(b) or Section 4, if the Company, at any time on or after the date of the
Securities Purchase Agreement, (i) pays a stock dividend on one or more classes
of its then outstanding shares of Common Stock or otherwise makes a distribution
on any class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.
(b) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on
or after the date of the Securities Purchase Agreement, the Company issues or
sells, or in accordance with this Section 2 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding any
Excluded Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such
Exercise Price then in effect is referred to as the "APPLICABLE PRICE") (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Exercise Price under
this Section 2(b), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(b)(i), the "lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Options or upon conversion, exercise or exchange of
any Convertible Securities issuable upon exercise of any such Option" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one share of Common Stock upon the granting or sale of such Option,
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upon exercise of such Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option and (y) the
lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option minus (2) the sum of all amounts paid or
payable to the holder of such Option (or any other Person) upon the
granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option plus the value of any other consideration received
or receivable by, or benefit conferred on, the holder of such Option (or
any other Person). Except as contemplated below, no further adjustment of
the Exercise Price shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(b)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange thereof" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to one share of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exercise or exchange of such Convertible
Security and (y) the lowest conversion price set forth in such Convertible
Security for which one share of Common Stock is issuable upon conversion,
exercise or exchange thereof minus (2) the sum of all amounts paid or
payable to the holder of such Convertible Security (or any other Person)
upon the issuance or sale of such Convertible Security plus the value of
any other consideration received or receivable by, or benefit conferred on,
the holder of such Convertible Security (or any other Person). Except as
contemplated below, no further adjustment of the Exercise Price shall be
made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(b), except as contemplated
below, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase or
exercise price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price in effect at the
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time of such increase or decrease shall be adjusted to the Exercise Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased purchase
price, additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of
this Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible Security
and the shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
increase or decrease. No adjustment pursuant to this Section 2(b) shall be
made if such adjustment would result in an increase of the Exercise Price
then in effect.
(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Option or
Convertible Security is issued in connection with the issuance or sale or
deemed issuance or sale of any other securities of the Company, together
comprising one integrated transaction, (x) such Option or Convertible
Security (as applicable) will be deemed to have been issued for
consideration equal to the Black Scholes Consideration Value thereof and
(y) the other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration
received by the Company minus (II) the Black Scholes Consideration Value of
each such Option or Convertible Security (as applicable). If any shares of
Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount of consideration received by
the Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received by
the Company for such securities will be the arithmetic average of the VWAPs
of such security for each of the five (5) Trading Days immediately
preceding the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity,
the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as
is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the
Company and the Holder. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.
(v) RECORD DATE. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
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dividend or other distribution payable in shares of Common Stock, Options
or in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase (as the case may be).
(c) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment (without regard to any limitations on exercise
contained herein).
(d) OTHER EVENTS. In the event that the Company (or any Subsidiary (as
defined in the Securities Purchase Agreement)) shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors shall in good faith determine and
implement an appropriate adjustment in the Exercise Price and the number of
Warrant Shares (if applicable) so as to protect the rights of the Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the Company.
(e) CALCULATIONS. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations on exercise hereof, including
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without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate in any such Distributions would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
Distribution to such extent) and such Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) PURCHASE RIGHTS. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Maximum Percentage) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
(b) FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents (as defined in the Securities Purchase Agreement) in
accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, which is exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise
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price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the consummation of such Fundamental Transaction) and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market. Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of the applicable
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of each Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such
items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of publicly traded common stock
(or its equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of each Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the applicable
Fundamental Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property (except
such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of the applicable Fundamental Transaction had this Warrant been
exercised immediately prior to the applicable Fundamental Transaction (without
regard to any limitations on the exercise of this Warrant). Provision made
pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Holder.
(c) BLACK SCHOLES VALUE. Notwithstanding the foregoing and the provisions
of Section 4(b) above, in the event of any announcement of any Fundamental
Transaction, then, at the request of the Holder delivered at any time after the
announcement of such Fundamental Transaction through the date that is ninety
(90) days after the consummation of such Fundamental Transaction, the Company or
the Successor Entity (as the case may be) shall purchase this Warrant from the
Holder on the date of such request by paying to the Holder cash in an amount
equal to the Black Scholes Value.
(d) APPLICATION. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
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exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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 of this Warrant, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of
share capital of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Holder, solely in its capacity as
the Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which it is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the stockholders
of the Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE OF WARRANTS.
(a) TRANSFER OF WARRANT. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
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transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) EXCHANGEABLE FOR MULTIPLE WARRANTS. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of
Common Stock shall be given.
(d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
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made known to the public prior to or in conjunction with such notice being
provided to the Holder and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving
party.
10. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
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Company's obligations to the Holder or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value or
the arithmetic calculation of the Warrant Shares (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price, the Bid Price or fair
market value or the number of Warrant Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted to the Company or the Holder (as the case may be), then the Company
shall, within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price, the Closing Sale Price, the Bid Price or
fair market value (as the case may be) to an independent, reputable investment
bank selected by the Holder or (b) the disputed arithmetic calculation of the
Warrant Shares to the Company's independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank's or accountant's determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other than as
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expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company's compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with
Section 2 hereof). The issuance of shares and certificates for shares as
contemplated hereby upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder or its agent on its
behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) "BID PRICE" means, for any security as of the particular time of
determination, the bid price for such security on the Principal Market as
reported by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
as of such time of determination, or if the foregoing does not apply, the bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg as of such time of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of determination, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the particular time
of determination on any of the foregoing bases, the Bid Price of such security
as of such time of determination shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
(b) "BLACK SCHOLES CONSIDERATION VALUE" means the value of the applicable
Option or Convertible Security (as the case may be) as of the date of issuance
thereof calculated using the Black Scholes Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing Sale Price of the Common Stock on the Trading Day immediately
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preceding the public announcement of the execution of definitive documents with
respect to the issuance of such Option or Convertible Security (as the case may
be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible Security (as
the case may be) as of the date of issuance of such Option or Convertible
Security (as the case may be) and (iii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg (determined utilizing a 365 day annualization factor) as of the
Trading Day immediately following the date of issuance of such Option or
Convertible Security (as the case may be).
(c) "BLACK SCHOLES VALUE" means the value of the unexercised portion of
this Warrant remaining on the date of the Holder's request pursuant to Section
4(c), which value is calculated using the Black Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg utilizing (i) an underlying price
per share equal to the greater of (1) the highest Closing Sale Price of the
Common Stock during the period beginning on the Trading Day immediately
preceding the announcement of the applicable Fundamental Transaction and ending
on the Trading Day of the Holder's request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the applicable Fundamental
Transaction (if any) plus the value of the non-cash consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the Holder's request pursuant to Section 4(c) and (2) the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365 day annualization factor) as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction.
(d) "BLOOMBERG" means Bloomberg, L.P.
(e) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(f) "CLOSING SALE PRICE" means, for any security as of any date, the last
closing trade price for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing trade price, then the last trade price
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last trade price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last trade price is
reported for such security by Bloomberg, the average of the ask prices of any
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
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market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 13. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
(g) "COMMON STOCK" means (i) the Company's shares of common stock, no par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.
(h) "CONVERTIBLE SECURITIES" means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(i) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.
(j) "EXPIRATION DATE" means the date that is the earlier to occur of (i)
the one hundred eighty (180) day anniversary of the Applicable Date (as defined
in the Securities Purchase Agreement) and (ii) the eighteen (18) month
anniversary of the Issuance Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
"Holiday"), the next date that is not a Holiday.
(k) "FUNDAMENTAL TRANSACTION" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) (I) reorganize, recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination, reverse stock
split or other similar transaction involving the Common Stock (including,
without limitation, any public announcement or disclosure of (x) any potential,
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possible or actual stock combination, reverse stock split or other similar
transaction involving the Common Stock or (y) board or stockholder approval
thereof, or the intention of the Company to seek board or stockholder approval
of any stock combination, reverse stock split or other similar transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.
(l) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(m) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(n) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
(o) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Holder,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.
(q) "TRADING DAY" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
(r) "VOTING STOCK" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
(s) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
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is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.
IMAGING3, INC.
By:____________________________________
Name:
Title:
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EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
IMAGING3, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California corporation (the "COMPANY"), evidenced by Series B Warrant
No. _______ (the "WARRANT"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Holder intends that payment of the Exercise
Price shall be made as:
____________ a "CASH EXERCISE" with respect to _________________ Warrant
Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to _______________ Warrant
Shares.
In the event that the Holder has elected a Cashless Exercise with respect
to some or all of the Warrant Shares to be issued pursuant hereto, the Holder
hereby represents and warrants that (i) this Exercise Notice was executed by the
Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if
applicable, the Bid Price as of such time of execution of this Exercise Notice
was $________.
2. PAYMENT OF EXERCISE PRICE. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to Holder, or its
designee or agent as specified below, __________ Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, to the following address:
_______________________
_______________________
_______________________
_______________________
Date: _______________ __, ______
________________________________
Name of Registered Holder
By:
___________________________________
Name:
Title:
<PAGE>
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.
IMAGING3, INC.
By:____________________________________
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>seriescwarrant.txt
<TEXT>
[FORM OF SERIES C WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
IMAGING3, INC.
WARRANT TO PURCHASE COMMON STOCK
Series C Warrant No.:
--------------
Date of Issuance: October ___, 2010 ("ISSUANCE DATE")
Imaging3, Inc., a California corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [CRANSHIRE CAPITAL, L.P.][OTHER BUYERS], the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon exercise of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), [______________]1 (subject to adjustment as
provided herein) fully paid and nonassessable shares of Common Stock (as defined
below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 16. This
Warrant is one of the Warrants to Purchase Common Stock (the "SPA WARRANTS")
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of October 4, 2010, by and among the Company and the investors (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT").
- --------
1 100% warrant coverage.
<PAGE>
1. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part, by delivery (whether via facsimile or otherwise) of a
written notice, in the form attached hereto as EXHIBIT A (the "EXERCISE
NOTICE"), of the Holder's election to exercise this Warrant. Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver payment to the Company of an amount equal to the Exercise Price in
effect on the date of such exercise multiplied by the number of Warrant Shares
as to which this Warrant was so exercised (the "AGGREGATE EXERCISE PRICE") in
cash or via wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise
hereunder. Execution and delivery of an Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares. Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as cancellation of the original of this Warrant after delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day following the date on which the Company has received an Exercise
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of such Exercise Notice, in the form attached hereto as
EXHIBIT B, to the Holder and the Company's transfer agent (the "TRANSFER
AGENT"). On or before the third (3rd) Trading Day following the date on which
the Company has received such Exercise Notice, the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the Holder or, at the Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee, in
each case, sent by reputable overnight courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register in the name of the Holder or its designee (as indicated in the
applicable Exercise Notice), for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then, at the request of the
Holder, the Company shall as soon as practicable and in no event later than
three (3) Business Days after any exercise and at its own expense, issue and
deliver to the Holder (or its designee) a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
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<PAGE>
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
and fees which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.
(b) EXERCISE PRICE. For purposes of this Warrant, "EXERCISE PRICE" means
$0.2725, subject to adjustment as provided herein.
(c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after receipt of the applicable Exercise Notice, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this Warrant
(as the case may be), then, in addition to all other remedies available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the aggregate number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days
after the Company's receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company's share register or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder (as the case may be), and if on or
after such third (3rd) Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder's exercise hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such shares of Common
Stock or credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon the Holder's exercise
hereunder (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock times (B) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable Exercise
Notice.
(d) CASHLESS EXERCISE. Notwithstanding anything contained herein to the
contrary (other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
-3-
<PAGE>
defined in the Securities Purchase Agreement)) is not effective (or the
prospectus contained therein is not available for use) for the resale by the
Holder of all of the Warrant Shares, then the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A X B) - (A X C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is
then being exercised.
B= as applicable: (i) the Closing Sale Price of the Common Stock on
the Trading Day immediately preceding the date of the applicable
Exercise Notice if such Exercise Notice is (1) both executed and
delivered pursuant to Section 1(a) hereof on a day that is not a
Trading Day or (2) both executed and delivered pursuant to Section
1(a) hereof on a Trading Day prior to the opening of "regular trading
hours" (as defined in Rule 600(b)(64) of Regulation NMS promulgated
under the federal securities laws) on such Trading Day, (ii) the Bid
Price of the Common Stock as of the time of the Holder's execution of
the applicable Exercise Notice if such Exercise Notice is executed
during "regular trading hours" on a Trading Day and is delivered
within two (2) hours thereafter pursuant to Section 1(a) hereof or
(iii) the Closing Sale Price of the Common Stock on the date of the
applicable Exercise Notice if the date of such Exercise Notice is a
Trading Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of "regular trading
hours" on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) DISPUTES. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof (including, without limitation, under
Section 1(h)), the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 13.
(f) LIMITATIONS ON EXERCISES. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.9% (the "MAXIMUM PERCENTAGE")
of the Common Stock. To the extent the above limitation applies, the
determination of whether this Warrant shall be exercisable (vis-a-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
-4-
<PAGE>
of its affiliates) and of which such securities shall be exercisable (as among
all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement.
(g) INSUFFICIENT AUTHORIZED SHARES. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
exercise of the SPA Warrants at least a number of shares of Common Stock equal
to the number of shares of Common Stock as shall from time to time be necessary
to effect the exercise of all of the SPA Warrants then outstanding (the
"REQUIRED RESERVE AMOUNT") (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for all the SPA Warrants then outstanding. Without
limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.
-5-
<PAGE>
(h) ISSUANCE LIMIT. Notwithstanding anything to the contrary contained in
this Warrant (but subject to Section 1(f)), the maximum number of Warrant Shares
for which this Warrant may be exercised at any specific time by the Holder shall
be equal to the quotient of (i) the Current Available Amount as of such time
over (ii) the Exercise Price then in effect as of such time. The foregoing
determination shall be made upon each receipt of an Exercise Notice hereunder
and no inability to exercise as of any specific time as a result of this Section
1(h) shall affect any future determination of exercisability as of any other
time. In the event that the Holder shall sell or otherwise transfer all or any
portion of this Warrant, the Company's board of directors shall in good faith
make equitable adjustments with respect to the Current Available Amount (and the
components thereof) to properly give effect to such sale of transfer, provided
further that if the Holder does not accept such adjustments, then the Company's
board of directors and the Holder shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and
whose fees and expenses shall be borne by the Company.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.
(a) STOCK DIVIDENDS AND SPLITS. Without limiting any provision of Section
2(b) or Section 4, if the Company, at any time on or after the date of the
Securities Purchase Agreement, (i) pays a stock dividend on one or more classes
of its then outstanding shares of Common Stock or otherwise makes a distribution
on any class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.
(b) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on
or after the date of the Securities Purchase Agreement, the Company issues or
sells, or in accordance with this Section 2 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding any
Excluded Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a consideration per share (the
-6-
<PAGE>
"NEW ISSUANCE PRICE") less than a price equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such
Exercise Price then in effect is referred to as the "APPLICABLE PRICE") (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Exercise Price under
this Section 2(b), the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(b)(i), the "lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Options or upon conversion, exercise or exchange of
any Convertible Securities issuable upon exercise of any such Option" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one share of Common Stock upon the granting or sale of such Option,
upon exercise of such Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option and (y) the
lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option minus (2) the sum of all amounts paid or
payable to the holder of such Option (or any other Person) upon the
granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option plus the value of any other consideration received
or receivable by, or benefit conferred on, the holder of such Option (or
any other Person). Except as contemplated below, no further adjustment of
the Exercise Price shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(b)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange thereof" shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to one share of Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exercise or exchange of such Convertible
-7-
<PAGE>
Security and (y) the lowest conversion price set forth in such Convertible
Security for which one share of Common Stock is issuable upon conversion,
exercise or exchange thereof minus (2) the sum of all amounts paid or
payable to the holder of such Convertible Security (or any other Person)
upon the issuance or sale of such Convertible Security plus the value of
any other consideration received or receivable by, or benefit conferred on,
the holder of such Convertible Security (or any other Person). Except as
contemplated below, no further adjustment of the Exercise Price shall be
made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(b), except as contemplated
below, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase or
exercise price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price in effect at the
time of such increase or decrease shall be adjusted to the Exercise Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased purchase
price, additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(i), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares
of Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such increase
or decrease. No adjustment pursuant to this Section 2(b) shall be made if
such adjustment would result in an increase of the Exercise Price then in
effect.
(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Option or
Convertible Security is issued in connection with the issuance or sale or
deemed issuance or sale of any other securities of the Company, together
comprising one integrated transaction, (x) such Option or Convertible
Security (as applicable) will be deemed to have been issued for
consideration equal to the Black Scholes Consideration Value thereof and
(y) the other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration
received by the Company minus (II) the Black Scholes Consideration Value of
each such Option or Convertible Security (as applicable). If any shares of
Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount of consideration received by
the Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received by
the Company for such securities will be the arithmetic average of the VWAPs
of such security for each of the five (5) Trading Days immediately
preceding the date of receipt. If any shares of Common Stock, Options or
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<PAGE>
Convertible Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity,
the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as
is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the
Company and the Holder. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.
(v) RECORD DATE. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options
or in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase (as the case may be).
(c) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment (without regard to any limitations on exercise
contained herein).
(d) OTHER EVENTS. In the event that the Company (or any Subsidiary (as
defined in the Securities Purchase Agreement)) shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors shall in good faith determine and
implement an appropriate adjustment in the Exercise Price and the number of
Warrant Shares (if applicable) so as to protect the rights of the Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the Company.
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(e) CALCULATIONS. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations on exercise hereof, including
without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate in any such Distributions would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
Distribution to such extent) and such Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) PURCHASE RIGHTS. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Maximum Percentage) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
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(b) FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents (as defined in the Securities Purchase Agreement) in
accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant, including, without limitation, which is exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the consummation of such Fundamental Transaction) and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market. Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of the applicable
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of each Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such
items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of publicly traded common stock
(or its equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of each Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the applicable
Fundamental Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property (except
such items still issuable under Sections 3 and 4(a) above, which shall continue
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to be receivable thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of the applicable Fundamental Transaction had this Warrant been
exercised immediately prior to the applicable Fundamental Transaction (without
regard to any limitations on the exercise of this Warrant). Provision made
pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Holder.
(c) BLACK SCHOLES VALUE. Notwithstanding the foregoing and the provisions
of Section 4(b) above, in the event of any announcement of any Fundamental
Transaction, then, at the request of the Holder delivered at any time after the
announcement of such Fundamental Transaction through the date that is ninety
(90) days after the consummation of such Fundamental Transaction, the Company or
the Successor Entity (as the case may be) shall purchase this Warrant from the
Holder on the date of such request by paying to the Holder cash in an amount
equal to the Black Scholes Value.
(d) APPLICATION. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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 of this Warrant, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of
share capital of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the Holder, solely in its capacity as
the Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
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or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which it is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the stockholders
of the Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE OF WARRANTS.
(a) TRANSFER OF WARRANT. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) EXCHANGEABLE FOR MULTIPLE WARRANTS. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of
Common Stock shall be given.
(d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
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Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving
party.
10. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
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11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company's obligations to the Holder or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value or
the arithmetic calculation of the Warrant Shares (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price, the Bid Price or fair
market value or the number of Warrant Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted to the Company or the Holder (as the case may be), then the Company
shall, within two (2) Business Days submit via facsimile (a) the disputed
determination of the Exercise Price, the Closing Sale Price, the Bid Price or
fair market value (as the case may be) to an independent, reputable investment
bank selected by the Holder or (b) the disputed arithmetic calculation of the
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Warrant Shares to the Company's independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank's or accountant's determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company's compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with
Section 2 hereof). The issuance of shares and certificates for shares as
contemplated hereby upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder or its agent on its
behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) "AGGREGATE FACE EXERCISE AMOUNT" is equal to $_____________.
(b) "AGGREGATE SERIES B FACE EXERCISE AMOUNT" is equal to $_____________.
(c) "BID PRICE" means, for any security as of the particular time of
determination, the bid price for such security on the Principal Market as
reported by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market for such
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security, the bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
as of such time of determination, or if the foregoing does not apply, the bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg as of such time of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of determination, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the particular time
of determination on any of the foregoing bases, the Bid Price of such security
as of such time of determination shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
(d) "BLACK SCHOLES CONSIDERATION VALUE" means the value of the applicable
Option or Convertible Security (as the case may be) as of the date of issuance
thereof calculated using the Black Scholes Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the public announcement of the execution of definitive documents with
respect to the issuance of such Option or Convertible Security (as the case may
be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible Security (as
the case may be) as of the date of issuance of such Option or Convertible
Security (as the case may be) and (iii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg (determined utilizing a 365 day annualization factor) as of the
Trading Day immediately following the date of issuance of such Option or
Convertible Security (as the case may be).
(e) "BLACK SCHOLES VALUE" means the value of the unexercised portion of
this Warrant remaining on the date of the Holder's request pursuant to Section
4(c), which value is calculated using the Black Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg utilizing (i) an underlying price
per share equal to the greater of (1) the highest Closing Sale Price of the
Common Stock during the period beginning on the Trading Day immediately
preceding the announcement of the applicable Fundamental Transaction and ending
on the Trading Day of the Holder's request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the applicable Fundamental
Transaction (if any) plus the value of the non-cash consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the Holder's request pursuant to Section 4(c) and (2) the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 365 day annualization factor) as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction.
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(f) "BLOOMBERG" means Bloomberg, L.P.
(g) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(h) "CLOSING SALE PRICE" means, for any security as of any date, the last
closing trade price for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing trade price, then the last trade price
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last trade price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last trade price is
reported for such security by Bloomberg, the average of the ask prices of any
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 13. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
(i) "COMMON STOCK" means (i) the Company's shares of common stock, no par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.
(j) "CONVERTIBLE SECURITIES" means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(k) "CURRENT AVAILABLE AMOUNT" is, as of the applicable time of
determination, equal to (i) the product of (1) the Aggregate Face Exercise
Amount times (2) the Series B Multiplier minus (ii) the Prior Aggregate Exercise
Amount.
(l) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.
(m) "EXPIRATION DATE" means the date that is the fifth (5th) anniversary of
the Issuance Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
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(n) "FUNDAMENTAL TRANSACTION" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) (I) reorganize, recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination, reverse stock
split or other similar transaction involving the Common Stock (including,
without limitation, any public announcement or disclosure of (x) any potential,
possible or actual stock combination, reverse stock split or other similar
transaction involving the Common Stock or (y) board or stockholder approval
thereof, or the intention of the Company to seek board or stockholder approval
of any stock combination, reverse stock split or other similar transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.
(o) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(p) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(q) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
(r) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(s) "PRIOR AGGREGATE EXERCISE AMOUNT" is, as of the applicable time of
determination, equal to the total aggregate Exercise Price theretofore actually
paid (whether in cash or by delivery of notice of Cashless Exercise) with
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<PAGE>
respect to the Series C Warrants initially issued to Cranshire Capital, L.P.
(and not including the exercise in question).
(t) "SERIES B MULTIPLIER" is equal to the quotient of (i) the Series B
Prior Aggregate Exercise Amount divided by (ii) the Aggregate Series B Face
Exercise Amount.
(u) "SERIES B PRIOR AGGREGATE EXERCISE AMOUNT" is, as of the applicable
time of determination, equal to the total aggregate Exercise Price (as defined
in the Series B Warrants (as defined in the Securities Purchase Agreement))
theretofore actually paid (whether in cash or by delivery of notice of Cashless
Exercise) for prior or concurrent exercises with respect to the Series B
Warrants initially issued to Cranshire Capital, L.P.
(v) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Holder,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.
(w) "TRADING DAY" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
(x) "VOTING STOCK" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
(y) "VWAP" means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
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<PAGE>
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
IMAGING3, INC.
By:____________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
IMAGING3, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California corporation (the "COMPANY"), evidenced by Series C Warrant
No. _______ (the "WARRANT"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Holder intends that payment of the Exercise
Price shall be made as:
____________ a "CASH EXERCISE" with respect to _________________ Warrant
Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to _______________ Warrant
Shares.
In the event that the Holder has elected a Cashless Exercise with respect
to some or all of the Warrant Shares to be issued pursuant hereto, the Holder
hereby represents and warrants that (i) this Exercise Notice was executed by the
Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if
applicable, the Bid Price as of such time of execution of this Exercise Notice
was $________.
2. PAYMENT OF EXERCISE PRICE. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to Holder, or its
designee or agent as specified below, __________ Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, to the following address:
_______________________
_______________________
_______________________
_______________________
Date: _______________ __, ______
________________________________
Name of Registered Holder
By:
____________________________________
Name:
Title:
<PAGE>
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.
IMAGING3, INC.
By:____________________________________
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>regrightsagr.txt
<TEXT>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
October ___, 2010, is by and among Imaging3, Inc., a California corporation with
offices located at 3200 W. Valhalla Drive, Burbank, California 91505 (the
"COMPANY"), and each of the undersigned buyers (each, a "BUYER," and
collectively, the "BUYERS").
RECITALS
A. In connection with the Securities Purchase Agreement by and among
the parties hereto, dated as of October 4, 2010 (the "SECURITIES PURCHASE
AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to each Buyer
(i) shares (the "COMMON SHARES") of the Company's common stock, no par value
(the "COMMON STOCK") and (ii) the Warrants (as defined in the Securities
Purchase Agreement) which will be exercisable to purchase Warrant Shares (as
defined in the Securities Purchase Agreement) in accordance with the terms of
the Warrants.
B. To induce the Buyers to consummate the transactions contemplated by
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. DEFINITIONS.
-----------
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
(a) "BUSINESS DAY" means any day other than Saturday, Sunday or any
other day on which commercial banks in New York, New York are authorized or
required by law to remain closed.
(b) "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.
(c) "EFFECTIVE DATE" means the date that the applicable Registration
Statement has been declared effective by the SEC.
(d) "EFFECTIVENESS DEADLINE" means (i) with respect to the initial
Registration Statement required to be filed pursuant to Section 2(a), the
earlier of the (A) 90th calendar day after the Closing Date (or the 120th
<PAGE>
calendar day after the Closing Date in the event that such Registration
Statement is subject to review by the SEC) and (B) 2nd Business Day after the
date the Company is notified (orally or in writing, whichever is earlier) by the
SEC that such Registration Statement will not be reviewed or will not be subject
to further review and (ii) with respect to any additional Registration
Statements that may be required to be filed by the Company pursuant to this
Agreement, the earlier of the (A) 90th calendar day following the date on which
the Company was required to file such additional Registration Statement (or the
120th calendar day after such date in the event that such Registration Statement
is subject to review by the SEC) and (B) 2nd Business Day after the date the
Company is notified (orally or in writing, whichever is earlier) by the SEC that
such Registration Statement will not be reviewed or will not be subject to
further review.
(e) "FILING DEADLINE" means (i) with respect to the initial
Registration Statement required to be filed pursuant to Section 2(a), the 30th
calendar day after the Closing Date and (ii) with respect to any additional
Registration Statements that may be required to be filed by the Company pursuant
to this Agreement, the date on which the Company was required to file such
additional Registration Statement pursuant to the terms of this Agreement.
(f) "INVESTOR" means a Buyer or any transferee or assignee of any
Registrable Securities or Warrants, as applicable, to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 and any transferee or assignee
thereof to whom a transferee or assignee of any Registrable Securities or
Warrants, as applicable, assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
(g) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization or a government or any department or agency thereof.
(h) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration of effectiveness of such Registration Statement(s) by the SEC.
(i) "REGISTRABLE SECURITIES" means (i) the Common Shares, (ii) the
Warrant Shares and (iii) any capital stock of the Company issued or issuable
with respect to the Common Shares, the Warrant Shares or the Warrants,
including, without limitation, (1) as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise and (2)
shares of capital stock of the Company into which the shares of Common Stock are
converted or exchanged and shares of capital stock of a Successor Entity (as
defined in the Warrants) into which the shares of Common Stock are converted or
exchanged, in each case, without regard to any limitations on exercise of the
Warrants.
(j) "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act covering
Registrable Securities.
(k) "REQUIRED REGISTRATION AMOUNT" means the sum of (i) the Common
Shares and (ii) 133% of the maximum number of Warrant Shares issued and issuable
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<PAGE>
pursuant to the Warrants as of the Trading Day (as defined in the Warrants)
immediately preceding the applicable date of determination (without taking into
account any limitations on the exercise of the Warrants set forth therein), all
subject to adjustment as provided in Section 2(d).
(l) "RULE 144" means Rule 144 promulgated by the SEC under the 1933
Act, as such rule may be amended from time to time, or any other similar or
successor rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration.
(m) "RULE 415" means Rule 415 promulgated by the SEC under the 1933
Act, as such rule may be amended from time to time, or any other similar or
successor rule or regulation of the SEC providing for offering securities on a
continuous or delayed basis.
(n) "SEC" means the United States Securities and Exchange Commission or
any successor thereto.
2. REGISTRATION.
------------
(a) MANDATORY REGISTRATION. The Company shall prepare and, as soon as
practicable, but in no event later than the Filing Deadline, file with the SEC
an initial Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities, provided that such initial Registration Statement shall
register for resale at least the number of shares of Common Stock equal to the
Required Registration Amount as of the date such Registration Statement is
initially filed with the SEC, provided further that if Form S-3 is unavailable
for such a registration, the Company shall use such other form as is required by
Section 2(c). Such initial Registration Statement, and each other Registration
Statement required to be filed pursuant to the terms of this Agreement, shall
contain (except if otherwise directed by each of the Investors) the "SELLING
STOCKHOLDERS" and "PLAN OF DISTRIBUTION" sections in substantially the form
attached hereto as EXHIBIT B. The Company shall use its best efforts to have
such initial Registration Statement, and each other Registration Statement
required to be filed pursuant to the terms of this Agreement, declared effective
by the SEC as soon as practicable, but in no event later than the applicable
Effectiveness Deadline for such Registration Statement.
(b) LEGAL COUNSEL. Subject to Section 5 hereof, Cranshire Capital, L.P.
("CRANSHIRE") shall have the right to select one (1) legal counsel to review and
oversee, solely on its behalf, any registration pursuant to this Section 2
("LEGAL COUNSEL"), which shall be Greenberg Traurig, LLP or such other counsel
as thereafter designated by Cranshire.
(c) INELIGIBILITY TO USE FORM S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to each of the
Investors and (ii) undertake to register the resale of the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of all Registration Statements then in
effect until such time as a Registration Statement on Form S-3 covering the
resale of all the Registrable Securities has been declared effective by the SEC.
(d) SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number of
shares available under any Registration Statement is insufficient to cover all
of the Registrable Securities required to be covered by such Registration
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<PAGE>
Statement or an Investor's allocated portion of the Registrable Securities
pursuant to Section 2(h), the Company shall amend such Registration Statement
(if permissible), or file with the SEC a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the Trading Day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises (but taking account of any Staff position
with respect to the date on which the Staff will permit such amendment to the
Registration Statement and/or such new Registration Statement (as the case may
be) to be filed with the SEC). The Company shall use its best efforts to cause
such amendment to such Registration Statement and/or such new Registration
Statement (as the case may be) to become effective as soon as practicable
following the filing thereof with the SEC, but in no event later than the
applicable Effectiveness Deadline for such Registration Statement. For purposes
of the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of shares of Common Stock available for
resale under the applicable Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time
by (ii) 0.90. The calculation set forth in the foregoing sentence shall be made
without regard to any limitations on exercise of the Warrants (and such
calculation shall assume that the Warrants are then fully exercisable for shares
of Common Stock at the then-prevailing applicable Exercise Price).
(e) EFFECT OF FAILURE TO FILE AND OBTAIN AND MAINTAIN EFFECTIVENESS OF
ANY REGISTRATION STATEMENT. If (i) a Registration Statement covering the resale
of all of the Registrable Securities required to be covered thereby
(disregarding any reduction pursuant to Section 2(f)) and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the Filing Deadline for such Registration Statement (a "FILING FAILURE")
(it being understood that if the Company files a Registration Statement without
affording each Investor the opportunity to review and comment on the same as
required by Section 3(c) hereof, the Company shall be deemed to not have
satisfied this clause (i)(A) and such event shall be deemed to be a Filing
Failure) or (B) not declared effective by the SEC on or before the Effectiveness
Deadline for such Registration Statement (an "EFFECTIVENESS FAILURE") (it being
understood that if on the Business Day immediately following the Effective Date
for such Registration Statement the Company shall not have filed a "final"
prospectus for such Registration Statement with the SEC under Rule 424(b) in
accordance with Section 3(b) (whether or not such a prospectus is technically
required by such rule), the Company shall be deemed to not have satisfied this
clause (i)(B) and such event shall be deemed to be an Effectiveness Failure),
(ii) other than during an Allowable Grace Period (as defined below), on any day
after the Effective Date of a Registration Statement sales of all of the
Registrable Securities required to be included on such Registration Statement
(disregarding any reduction pursuant to Section 2(f)) cannot be made pursuant to
such Registration Statement (including, without limitation, because of a failure
to keep such Registration Statement effective, a failure to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, a suspension or delisting of (or a failure to timely list) the shares
-4-
<PAGE>
of Common Stock on the Principal Market (as defined in the Securities Purchase
Agreement), or a failure to register a sufficient number of shares of Common
Stock or by reason of a stop order) or the prospectus contained therein is not
available for use for any reason (a "MAINTENANCE FAILURE"), or (iii) if a
Registration Statement is not effective for any reason or the prospectus
contained therein is not available for use for any reason, the Company fails to
file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act
such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if
applicable) (a "CURRENT PUBLIC INFORMATION FAILURE") as a result of which any of
the Investors are unable to sell Registrable Securities without restriction
under Rule 144 (including, without limitation, volume restrictions), then, as
partial relief for the damages to any holder by reason of any such delay in, or
reduction of, its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Registrable Securities relating
to such Registration Statement an amount in cash equal to two (2%)] percent of
such Investor's Purchase Price (as defined in the Securities Purchase Agreement)
on the date of such Filing Failure, Effectiveness Failure, Maintenance Failure
or Current Public Information Failure, as applicable, and (2) on every thirty
(30) day anniversary of (I) a Filing Failure until such Filing Failure is cured;
(II) an Effectiveness Failure until such Effectiveness Failure is cured; (III) a
Maintenance Failure until such Maintenance Failure is cured; and (IV) a Current
Public Information Failure until the earlier of (i) the date such Current Public
Information Failure is cured and (ii) such time that such public information is
no longer required pursuant to Rule 144 (in each case, pro rated for periods
totaling less than thirty (30) days). The payments to which a holder of
Registrable Securities shall be entitled pursuant to this Section 2(e) are
referred to herein as "REGISTRATION DELAY PAYMENTS." Following the initial
Registration Delay Payment for any particular event or failure (which shall be
paid on the date of such event or failure, as set forth above), without limiting
the foregoing, if an event or failure giving rise to the Registration Delay
Payments is cured prior to any thirty (30) day anniversary of such event or
failure, then such Registration Delay Payment shall be made on the third (3rd)
Business Day after such cure. In the event the Company fails to make
Registration Delay Payments in a timely manner in accordance with the foregoing,
such Registration Delay Payments shall bear interest at the rate of one and
one-half percent (1.5%) per month (prorated for partial months) until paid in
full. Notwithstanding the foregoing, no Registration Delay Payments shall be
owed to an Investor (other than with respect to a Maintenance Failure resulting
from a suspension or delisting of (or a failure to timely list) the shares of
Common Stock on the Principal Market) with respect to any period during which
all of such Investor's Registrable Securities may be sold by such Investor
without restriction under Rule 144 (including, without limitation, volume
restrictions) and without the need for current public information required by
Rule 144(c)(1) (or Rule 144(i)(2), if applicable).
(f) OFFERING. Notwithstanding anything to the contrary contained in
this Agreement, but subject to the payment of the Registration Delay Payments
pursuant to Section 2(e), in the event the staff of the SEC (the "Staff") or the
SEC seeks to characterize any offering pursuant to a Registration Statement
filed pursuant to this Agreement as constituting an offering of securities by,
or on behalf of, the Company, or in any other manner, such that the Staff or the
SEC do not permit such Registration Statement to become effective and used for
resales in a manner that does not constitute such an offering and that permits
the continuous resale at the market by the Investors participating therein (or
as otherwise may be acceptable to each Investor) without being named therein as
an "underwriter," then the Company shall reduce the number of shares to be
included in such Registration Statement by all Investors until such time as the
Staff and the SEC shall so permit such Registration Statement to become
effective as aforesaid. In making such reduction, the Company shall reduce the
number of shares to be included by all Investors on a pro rata basis (based upon
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<PAGE>
the number of Registrable Securities otherwise required to be included for each
Investor) unless the inclusion of shares by a particular Investor or a
particular set of Investors are resulting in the Staff or the SEC's "by or on
behalf of the Company" offering position, in which event the shares held by such
Investor or set of Investors shall be the only shares subject to reduction (and
if by a set of Investors on a pro rata basis by such Investors or on such other
basis as would result in the exclusion of the least number of shares by all such
Investors). In addition, in the event that the Staff or the SEC requires any
Investor seeking to sell securities under a Registration Statement filed
pursuant to this Agreement to be specifically identified as an "underwriter" in
order to permit such Registration Statement to become effective, and such
Investor does not consent to being so named as an underwriter in such
Registration Statement, then, in each such case, the Company shall reduce the
total number of Registrable Securities to be registered on behalf of such
Investor, until such time as the Staff or the SEC does not require such
identification or until such Investor accepts such identification and the manner
thereof. Any reduction pursuant to this paragraph will first reduce all
Registrable Securities other than those issued pursuant to the Securities
Purchase Agreement. In the event of any reduction in Registrable Securities
pursuant to this paragraph, an affected Investor shall have the right to
require, upon delivery of a written request to the Company signed by such
Investor, the Company to file a registration statement within thirty (30) days
of such request (subject to any restrictions imposed by Rule 415 or required by
the Staff or the SEC) for resale by such Investor in a manner acceptable to such
Investor, and the Company shall following such request cause to be and keep
effective such registration statement in the same manner as otherwise
contemplated in this Agreement for registration statements hereunder, in each
case until such time as: (i) all Registrable Securities held by such Investor
have been registered and sold pursuant to an effective Registration Statement in
a manner acceptable to such Investor or (ii) all Registrable Securities may be
resold by such Investor without restriction (including, without limitation,
volume limitations) pursuant to Rule 144 (taking account of any Staff position
with respect to "affiliate" status) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or
(iii) such Investor agrees to be named as an underwriter in any such
Registration Statement in a manner acceptable to such Investor as to all
Registrable Securities held by such Investor and that have not theretofore been
included in a Registration Statement under this Agreement (it being understood
that the special demand right under this sentence may be exercised by an
Investor multiple times and with respect to limited amounts of Registrable
Securities in order to permit the resale thereof by such Investor as
contemplated above).
(g) PIGGYBACK REGISTRATIONS. Without limiting any obligation of the
Company hereunder or under the Securities Purchase Agreement, if there is not an
effective Registration Statement covering all of the Registrable Securities or
the prospectus contained therein is not available for use and the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the 1933 Act of
any of its equity securities (other than on Form S-4 or Form S-8 (each as
promulgated under the 1933 Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with the Company's stock
option or other employee benefit plans), then the Company shall deliver to each
Investor a written notice of such determination and, if within fifteen (15) days
after the date of the delivery of such notice, any such Investor shall so
request in writing, the Company shall include in such registration statement all
or any part of such Registrable Securities such Investor requests to be
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<PAGE>
registered; provided, however, the Company shall not be required to register any
Registrable Securities pursuant to this Section 2(g) that are eligible for
resale pursuant to Rule 144 without restriction (including, without limitation,
volume restrictions) and without the need for current public information
required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or that are the
subject of a then-effective Registration Statement.
(h) ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time such Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee or assignee (as the case may
be) that becomes an Investor shall be allocated a pro rata portion of the
then-remaining number of Registrable Securities included in such Registration
Statement for such transferor or assignee (as the case may be). Any shares of
Common Stock included in a Registration Statement and which remain allocated to
any Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Investors, pro rata
based on the number of Registrable Securities then held by such Investors which
are covered by such Registration Statement.
(i) NO INCLUSION OF OTHER SECURITIES. In no event shall the Company
include any securities other than Registrable Securities on any Registration
Statement without the prior written consent of each of the Investors. Until the
Applicable Date (as defined in the Securities Purchase Agreement), the Company
shall not enter into any agreement providing any registration rights to any of
its security holders.
3. RELATED OBLIGATIONS.
-------------------
The Company shall use its best efforts to effect the registration of
the Registrable Securities in accordance with the intended method of disposition
thereof, and, pursuant thereto, the Company shall have the following
obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to all the Registrable Securities (but in no
event later than the applicable Filing Deadline) and use its best efforts to
cause such Registration Statement to become effective as soon as practicable
after such filing (but in no event later than the Effectiveness Deadline).
Subject to Allowable Grace Periods, the Company shall keep each Registration
Statement effective (and the prospectus contained therein available for use)
pursuant to Rule 415 for resales by the Investors on a delayed or continuous
basis at then-prevailing market prices (and not fixed prices) at all times until
the earlier of (i) the date as of which all of the Investors may sell all of the
Registrable Securities required to be covered by such Registration Statement
(disregarding any reduction pursuant to Section 2(f)) without restriction
pursuant to Rule 144 (including, without limitation, volume restrictions) and
without the need for current public information required by Rule 144(c)(1) (or
Rule 144(i)(2), if applicable) or (ii) the date on which the Investors shall
have sold all of the Registrable Securities covered by such Registration
Statement (the "REGISTRATION PERIOD"). Notwithstanding anything to the contrary
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contained in this Agreement, the Company shall ensure that, when filed and at
all times while effective, each Registration Statement (including, without
limitation, all amendments and supplements thereto) and the prospectus
(including, without limitation, all amendments and supplements thereto) used in
connection with such Registration Statement (1) shall not contain any 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 case of
prospectuses, in the light of the circumstances in which they were made) not
misleading and (2) will disclose (whether directly or through incorporation by
reference to other SEC filings to the extent permitted) all material information
regarding the Company and its securities. The Company shall submit to the SEC,
within one (1) Business Day after the later of the date that (i) the Company
learns that no review of a particular Registration Statement will be made by the
Staff or that the Staff has no further comments on a particular Registration
Statement (as the case may be) and (ii) the consent of Legal Counsel is obtained
pursuant to Section 3(c) (which consent shall be immediately sought), a request
for acceleration of effectiveness of such Registration Statement to a time and
date not later than forty-eight (48) hours after the submission of such request.
(b) Subject to Section 3(r) of this Agreement, the Company shall
prepare and file with the SEC such amendments (including, without limitation,
post-effective amendments) and supplements to each Registration Statement and
the prospectus used in connection with each such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act,
as may be necessary to keep each such Registration Statement effective at all
times during the Registration Period for such Registration Statement, and,
during such period, comply with the provisions of the 1933 Act with respect to
the disposition of all Registrable Securities of the Company required to be
covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement; provided, however, by 8:30 a.m. (New York time) on
the Business Day immediately following each Effective Date, the Company shall
file with the SEC in accordance with Rule 424(b) under the 1933 Act the final
prospectus to be used in connection with sales pursuant to the applicable
Registration Statement (whether or not such a prospectus is technically required
by such rule). In the case of amendments and supplements to any Registration
Statement which are required to be filed pursuant to this Agreement (including,
without limitation, pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-Q or Form 10-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.
(c) The Company shall (A) permit Legal Counsel and legal counsel for
each other Investor to review and comment upon (i) each Registration Statement
at least five (5) Business Days prior to its filing with the SEC and (ii) all
amendments and supplements to each Registration Statement (including, without
limitation, the prospectus contained therein) (except for Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any
similar or successor reports) within a reasonable number of days prior to their
filing with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel or any legal counsel for any
other Investor reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto or to any prospectus contained therein without the prior
consent of Legal Counsel, which consent shall not be unreasonably withheld. The
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<PAGE>
Company shall promptly furnish to Legal Counsel and legal counsel for each other
Investor, without charge, (i) copies of any correspondence from the SEC or the
Staff to the Company or its representatives relating to each Registration
Statement, provided that such correspondence shall not contain any material,
non-public information regarding the Company or any of its Subsidiaries (as
defined in the Securities Purchase Agreement), (ii) after the same is prepared
and filed with the SEC, one (1) copy of each Registration Statement and any
amendment(s) and supplement(s) thereto, including, without limitation, financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, and all exhibits and (iii) upon the effectiveness of
each Registration Statement, one (1) copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel and legal counsel for each other
Investor in performing the Company's obligations pursuant to this Section 3.
(d) The Company shall promptly furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) after the same is prepared and filed with the SEC, at least one (1)
copy of each Registration Statement and any amendment(s) and supplement(s)
thereto, including, without limitation, financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of each
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request from time to time) and
(iii) such other documents, including, without limitation, copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
(e) The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including, without limitation, post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, the
Company shall not be required in connection therewith or as a condition thereto
to (x) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(e), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify Legal
Counsel, legal counsel for each other Investor and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
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<PAGE>
(f) The Company shall notify Legal Counsel, legal counsel for each
other Investor and each Investor in writing of the happening of any event, as
promptly as practicable after becoming aware of such event, as a result of which
the prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission 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
(provided that in no event shall such notice contain any material, non-public
information regarding the Company or any of its Subsidiaries), and, subject to
Section 3(r), promptly prepare a supplement or amendment to such Registration
Statement and such prospectus contained therein to correct such untrue statement
or omission and deliver ten (10) copies of such supplement or amendment to Legal
Counsel, legal counsel for each other Investor and each Investor (or such other
number of copies as Legal Counsel, legal counsel for each other Investor or such
Investor may reasonably request). The Company shall also promptly notify Legal
Counsel, legal counsel for each other Investor and each Investor in writing (i)
when a prospectus or any prospectus supplement or post-effective amendment has
been filed, when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel, legal counsel for each other Investor and each Investor by facsimile or
e-mail on the same day of such effectiveness and by overnight mail), and when
the Company receives written notice from the SEC that a Registration Statement
or any post-effective amendment will be reviewed by the SEC, (ii) of any request
by the SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate; and (iv) of the receipt of any request by the SEC or any other
federal or state governmental authority for any additional information relating
to the Registration Statement or any amendment or supplement thereto or any
related prospectus. The Company shall respond as promptly as practicable to any
comments received from the SEC with respect to each Registration Statement or
any amendment thereto (it being understood and agreed that the Company's
response to any such comments shall be delivered to the SEC no later than five
(5) days after the receipt thereof).
(g) The Company shall (i) use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of each Registration
Statement or the use of any prospectus contained therein, or the suspension of
the qualification, or the loss of an exemption from qualification, of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and (ii) notify Legal Counsel, legal counsel for
each other Investor and each Investor who holds Registrable Securities of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
(h) If any Investor may be required under applicable securities law to
be described in any Registration Statement as an underwriter and such Investor
consents to so being named an underwriter, at the request of any Investor, the
Company shall furnish to such Investor, on the date of the effectiveness of such
Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the Investors, and (ii) an
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<PAGE>
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.
(i) If any Investor may be required under applicable securities law to
be described in any Registration Statement as an underwriter and such Investor
consents to so being named an underwriter, upon the written request of such
Investor, the Company shall make available for inspection by (i) such Investor,
(ii) legal counsel for such Investor and (iii) one (1) firm of accountants or
other agents retained by such Investor (collectively, the "INSPECTORS"), all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "RECORDS"), as shall be reasonably
deemed necessary by each Inspector, and cause the Company's officers, directors
and employees to supply all information which any Inspector may reasonably
request; provided, however, each Inspector shall agree in writing to hold in
strict confidence and not to make any disclosure (except to such Investor) or
use of any Record or other information which the Company's board of directors
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (1) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (2) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (3) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this Agreement or any other Transaction Document (as
defined in the Securities Purchase Agreement). Such Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and such Investor, if any) shall
be deemed to limit any Investor's ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and regulations.
(j) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
to be disclosed in such Registration Statement pursuant to the 1933 Act, (iii)
the release of such information is ordered pursuant to a subpoena or other
final, non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
Transaction Document. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at such
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
(k) Without limiting any obligation of the Company under the Securities
Purchase Agreement, the Company shall use its best efforts either to (i) cause
all of the Registrable Securities covered by each Registration Statement to be
listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
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Registrable Securities is then permitted under the rules of such exchange, (ii)
secure designation and quotation of all of the Registrable Securities covered by
each Registration Statement on the OTC Bulletin Board, or (iii) if, despite the
Company's best efforts to satisfy the preceding clauses (i) or (ii) the Company
is unsuccessful in satisfying the preceding clauses (i) or (ii), without
limiting the generality of the foregoing, to use its best efforts to arrange for
at least two market makers to register with the Financial Industry Regulatory
Authority ("FINRA") as such with respect to such Registrable Securities. In
addition, the Company shall cooperate with each Investor and any broker or
dealer through which any such Investor proposes to sell its Registrable
Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as
requested by such Investor. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 3(k).
(l) The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts
(as the case may be) as the Investors may reasonably request from time to time
and registered in such names as the Investors may request.
(m) If requested by an Investor, the Company shall as soon as
practicable after receipt of notice from such Investor and subject to Section
3(r) hereof, (i) incorporate in a prospectus supplement or post-effective
amendment such information as an Investor reasonably requests to be included
therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement or prospectus
contained therein if reasonably requested by an Investor holding any Registrable
Securities.
(n) The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
(o) The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the applicable Effective Date of each Registration
Statement.
(p) The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
(q) Within one (1) Business Day after a Registration Statement which
covers Registrable Securities is declared effective by the SEC, the Company
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shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as EXHIBIT A.
(r) Notwithstanding anything to the contrary herein (but subject to the
last sentence of this Section 3(r)), at any time after the Effective Date of a
particular Registration Statement, the Company may delay the disclosure of
material, non-public information concerning the Company or any of its
Subsidiaries the disclosure of which at the time is not, in the good faith
opinion of the board of directors of the Company, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a
"GRACE PERIOD"), provided that the Company shall promptly notify the Investors
in writing of the (i) existence of material, non-public information giving rise
to a Grace Period (provided that in each such notice the Company shall not
disclose the content of such material, non-public information to any of the
Investors) and the date on which such Grace Period will begin and (ii) date on
which such Grace Period ends, provided further that (I) no Grace Period shall
exceed ten (10) consecutive days and during any three hundred sixty five (365)
day period all such Grace Periods shall not exceed an aggregate of thirty (30)
days, (II) the first day of any Grace Period must be at least five (5) Trading
Days after the last day of any prior Grace Period and (III) no Grace Period may
exist during the sixty (60) Trading Day period immediately following the
Effective Date of such Registration Statement (provided that such sixty (60)
Trading Day period shall be extended by the number of Trading Days during such
period and any extension thereof contemplated by this proviso during which such
Registration Statement is not effective or the prospectus contained therein is
not available for use) (each, an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, such Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
above and shall end on and include the later of the date the Investors receive
the notice referred to in clause (ii) above and the date referred to in such
notice. The provisions of Section 3(g) hereof shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of each Grace Period, the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. Notwithstanding anything to the contrary
contained in this Section 3(r), the Company shall cause its transfer agent to
deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Securities Purchase Agreement in connection
with any sale of Registrable Securities with respect to which such Investor has
entered into a contract for sale, and delivered a copy of the prospectus
included as part of the particular Registration Statement to the extent
applicable, prior to such Investor's receipt of the notice of a Grace Period and
for which the Investor has not yet settled.
(s) The Company shall use its best efforts to maintain eligibility for
use of Form S-3 (or any successor form thereto) for the registration of the
resale of all the Registrable Securities.
(t) The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by each Investors of its Registrable
Securities pursuant to each Registration Statement.
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4. OBLIGATIONS OF THE INVESTORS.
----------------------------
(a) At least five (5) Business Days prior to the first anticipated
filing date of each Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each such
Investor with respect to such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect and maintain the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of each Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of Section 3(f) or receipt of notice that no supplement or
amendment is required. Notwithstanding anything to the contrary in this Section
4(c), the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which such Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f) and for which such Investor has not yet settled.
(d) Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to a Registration
Statement.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
FINRA filing fees (if any) and fees and disbursements of counsel for the Company
shall be paid by the Company. The Company shall also reimburse Cranshire for the
fees and disbursements of Legal Counsel in connection with registration, filing
or qualification pursuant to Sections 2 and 3 of this Agreement which amount
shall be limited to $10,000.
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6. INDEMNIFICATION.
---------------
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor and each of its
directors, officers, shareholders, members, partners, employees, agents,
advisors, representatives (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding the lack of such title or
any other title) and each Person, if any, who controls such Investor within the
meaning of the 1933 Act or the 1934 Act and each of the directors, officers,
shareholders, members, partners, employees, agents, advisors, representatives
(and any other Persons with a functionally equivalent role of a Person holding
such titles notwithstanding the lack of such title or any other title) of such
controlling Persons (each, an "INDEMNIFIED PERSON"), against any losses,
obligations, claims, damages, liabilities, contingencies, judgments, fines,
penalties, charges, costs (including, without limitation, court costs,
reasonable attorneys' fees and costs of defense and investigation), amounts paid
in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred
in investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to Section 6(c), the Company shall reimburse the
Indemnified Persons, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person for such Indemnified Person expressly for use in connection
with the preparation of such Registration Statement or any such amendment
thereof or supplement thereto and (ii) shall not be available to a particular
Investor to the extent such Claim is based on a failure of such Investor to
deliver or to cause to be delivered the prospectus made available by the Company
(to the extent applicable), including, without limitation, a corrected
prospectus, if such prospectus or corrected prospectus was timely made available
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by the Company pursuant to Section 3(d) and then only if, and to the extent
that, following the receipt of the corrected prospectus no grounds for such
Claim would have existed; and (iii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of any of the Registrable Securities by any of the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor
is participating, such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case, to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c) and the below provisos
in this Section 6(b), such Investor will reimburse an Indemnified Party any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
the indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed, provided further that such Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the applicable sale
of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
any of the Registrable Securities by any of the Investors pursuant to Section 9.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party (as the case may be) under this Section 6 of notice of the commencement of
any action or proceeding (including, without limitation, any governmental action
or proceeding) involving a Claim, such Indemnified Person or Indemnified Party
(as the case may be) shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party (as the
case may be); provided, however, an Indemnified Person or Indemnified Party (as
the case may be) shall have the right to retain its own counsel with the fees
and expenses of such counsel to be paid by the indemnifying party if: (i) the
indemnifying party has agreed in writing to pay such fees and expenses; (ii) the
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<PAGE>
indemnifying party shall have failed promptly to assume the defense of such
Claim and to employ counsel reasonably satisfactory to such Indemnified Person
or Indemnified Party (as the case may be) in any such Claim; or (iii) the named
parties to any such Claim (including, without limitation, any impleaded parties)
include both such Indemnified Person or Indemnified Party (as the case may be)
and the indemnifying party, and such Indemnified Person or such Indemnified
Party (as the case may be) shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Person or such Indemnified Party and the indemnifying party (in
which case, if such Indemnified Person or such Indemnified Party (as the case
may be) notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, then 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, provided further that in the
case of clause (iii) above the indemnifying party shall not be responsible for
the reasonable fees and expenses of more than one (1) separate legal counsel for
such Indemnified Person or Indemnified Party (as the case may be). The
Indemnified Party or Indemnified Person (as the case may be) shall reasonably
cooperate 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 or Indemnified Person (as the case may be) which relates to
such action or Claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person (as the case may be) reasonably apprised at all times as to
the status of the defense or any settlement negotiations with respect thereto.
No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person (as the case may be), consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person (as the case may be) of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person (as the case may be) with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party (as the case may be) under this Section 6, except to the extent that the
indemnifying party is materially and adversely prejudiced in its ability to
defend such action.
(d) No Person involved in the sale of Registrable Securities who is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to indemnification
from any Person involved in such sale of Registrable Securities who is not
guilty of fraudulent misrepresentation.
(e) The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(f) The indemnity and contribution agreements contained herein shall be
in addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
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<PAGE>
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however: (i)
no contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 6
of this Agreement, (ii) no Person involved in the sale of Registrable Securities
which Person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities who
was not guilty of fraudulent misrepresentation; and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the amount of net
proceeds received by such seller from the applicable sale of such Registrable
Securities pursuant to such Registration Statement. Notwithstanding the
provisions of this Section 7, no Investor shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the net proceeds
actually received by such Investor from the applicable sale of the Registrable
Securities subject to the Claim exceeds the amount of any damages that such
Investor has otherwise been required to pay, or would otherwise be required to
pay under Section 6(b), by reason of such untrue or alleged untrue statement or
omission or alleged omission.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule
144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood and agreed
that nothing herein shall limit any obligations of the Company under the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting, submission and posting
requirements of Rule 144 and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company with the SEC if such reports are not publicly available via
EDGAR, and (iii) such other information as may be reasonably requested to permit
the Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
All or any portion of the rights under this Agreement shall be
automatically assignable by each Investor to any transferee or assignee (as the
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case may be) of all or any portion of such Investor's Registrable Securities or
Warrants if: (i) such Investor agrees in writing with such transferee or
assignee (as the case may be) to assign all or any portion of such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such transfer or assignment (as the case may be); (ii) the Company is,
within a reasonable time after such transfer or assignment (as the case may be),
furnished with written notice of (a) the name and address of such transferee or
assignee (as the case may be), and (b) the securities with respect to which such
registration rights are being transferred or assigned (as the case may be);
(iii) immediately following such transfer or assignment (as the case may be) the
further disposition of such securities by such transferee or assignee (as the
case may be) is restricted under the 1933 Act or applicable state securities
laws if so required; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence such transferee or assignee
(as the case may be) agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer or assignment (as the case
may be) shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement and the Warrants (as the case may be); and
(vi) such transfer or assignment (as the case may be) shall have been conducted
in accordance with all applicable federal and state securities laws.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended only with the written
consent of the Company and each of the Investors. No waiver shall be effective
unless it is in writing and signed by an authorized representative of the
waiving party. No consideration shall be offered or paid to any Person to amend
or consent to a waiver or modification of any provision of this Agreement unless
the same consideration also is offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
-------------
(a) Solely for purposes of this Agreement, a Person is deemed to be a
holder of Registrable Securities whenever such Person owns, or is deemed to own,
of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from such record owner of such
Registrable Securities.
(b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) with respect to Section 3(c), by electronic mail (provided
confirmation of transmission is electronically generated and kept on file by the
sending party); or (iv) one (1) Business Day after deposit with a nationally
recognized overnight delivery service with next day delivery specified, in each
case, properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
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<PAGE>
If to the Company:
3200 W. Valhalla Drive
Burbank, California 91505
Telephone: (800) 900-9729
Facsimile: (818) 260-0445
Attention: Chief Executive Officer
With a copy (for informational purposes only) to:
Richardson & Associates
1453 3rd Street Promenade #315
Santa Monica, CA 90401-3419
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
Attention: Mark Richardson, Esq.
If to the Transfer Agent:
Mountain Share Transfer Company
1625 Abilene Dr.
Broomfield, Colorado 80020
Telephone: (303) 460-1149
Facsimile: (303) 438-9243
Attention: Beth Powell
If to Legal Counsel:
Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 3100
Chicago, Illinois 60601
Telephone: (312) 456-8400
Facsimile: (312) 456-8435
Attention: Peter H. Lieberman, Esq.
Todd A. Mazur, Esq.
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached to the Securities Purchase Agreement, with copies to such
Buyer's representatives as set forth on the Schedule of Buyers, or to such other
address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party
five (5) days prior to the effectiveness of such change, provided that Greenberg
Traurig, LLP shall only be provided notices sent to Cranshire. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine or electronic mail transmission containing the
time, date, recipient facsimile number or electronic mail address and an image
of the first page of such transmission or (C) provided by a courier or overnight
courier service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
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<PAGE>
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof. The Company and each Investor acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that each
party hereto shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement by any other party hereto and
to enforce specifically the terms and provisions hereof (without the necessity
of showing economic loss and without any bond or other security being required),
this being in addition to any other remedy to which any party may be entitled by
law or equity.
(d) The parties hereby agree that pursuant to 735 Illinois Compiled
Statutes 105/5-5 they have chosen that all questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of Illinois, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Illinois or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Illinois. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in Chicago, Illinois, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the other Transaction Documents, the schedules and
exhibits attached hereto and thereto and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto and thereto
solely with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the other Transaction
Documents, the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all prior agreements and
understandings among the parties hereto solely with respect to the subject
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<PAGE>
matter hereof and thereof; provided, however, nothing contained in this
Agreement or any other Transaction Document shall (or shall be deemed to) (i)
have any effect on any agreements any Investor has entered into with the Company
or any of its Subsidiaries prior to the date hereof with respect to any prior
investment made by such Investor in the Company, (ii) waive, alter, modify or
amend in any respect any obligations of the Company or any of its Subsidiaries
or any rights of or benefits to any Investor or any other Person in any
agreement entered into prior to the date hereof between or among the Company
and/or any of its Subsidiaries and any Investor and all such agreements shall
continue in full force and effect or (iii) limit any obligations of the Company
under any of the other Transaction Documents.
(f) Subject to compliance with Section 9 (if applicable), this
Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto. This Agreement is not for
the benefit of, nor may any provision hereof be enforced by, any Person, other
than the parties hereto, their respective permitted successors and assigns and
the Persons referred to in Sections 6 and 7 hereof.
(g) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. Unless the
context clearly indicates otherwise, each pronoun herein shall be deemed to
include the masculine, feminine, neuter, singular and plural forms thereof. The
terms "including," "includes," "include" and words of like import shall be
construed broadly as if followed by the words "without limitation." The terms
"herein," "hereunder," "hereof" and words of like import refer to this entire
Agreement instead of just the provision in which they are found.
(h) This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.
(i) Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
(j) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party. Notwithstanding anything
to the contrary set forth in Section 10, terms used in this Agreement but
defined in the other Transaction Documents shall have the meanings ascribed to
such terms on the Closing Date in such other Transaction Documents unless
otherwise consented to in writing by each Investor.
(k) The obligations of each Investor under this Agreement and the other
Transaction Documents are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under this Agreement or any
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<PAGE>
other Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall
be deemed to constitute the Investors as, and the Company acknowledges that the
Investors do not so constitute, a partnership, an association, a joint venture
or any other kind of group or entity, or create a presumption that the Investors
are in any way acting in concert or as a group or entity with respect to such
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Investors are not acting in
concert or as a group, and the Company shall not assert any such claim, with
respect to such obligations or the transactions contemplated by this Agreement
or any of the other the Transaction Documents. Each Investor shall be entitled
to independently protect and enforce its rights, including, without limitation,
the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose. The use of a single
agreement with respect to the obligations of the Company contained herein was
solely in the control of the Company, not the action or decision of any
Investor, and was done solely for the convenience of the Company and not because
it was required or requested to do so by any Investor. It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and an Investor, solely,
and not between the Company and the Investors collectively and not between and
among Investors.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
COMPANY:
IMAGING3, INC.
By:______________________________________
Name:
Title:
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
BUYER:
CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Inc.
Its: General Partner
_____________________________
By: ____________________
Its: ____________________
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
BUYER:
FREESTONE ADVANTAGE PARTNERS, L.P.
_____________________________
By: ____________________
Its: ____________________
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<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
_________________________
_________________________
_________________________
Attention: _____________
RE: IMAGING3, INC.
Ladies and Gentlemen:
[We are][I am] counsel to Imaging3, Inc., a California
corporation (the "COMPANY"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT")
entered into by and among the Company and the buyers named therein
(collectively, the "HOLDERS") pursuant to which the Company issued to the
Holders shares of the Company's common stock, no par value per share (the
"COMMON STOCK"), and warrants exercisable for shares of Common Stock (the
"WARRANTS"). Pursuant to the Securities Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "REGISTRATION
RIGHTS AGREEMENT") 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 exercise of the
Warrants, under the Securities Act of 1933, as amended (the "1933 ACT"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 20__, the Company filed a Registration Statement
on Form [S-1][S-3] (File No. 333-_____________) (the "REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "SEC") relating to the
Registrable Securities which names each of the Holders as a selling stockholder
thereunder.
In connection with the foregoing, [we][I] advise you that a
member of the SEC's staff has advised [us][me] 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][I] 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 the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
This letter shall serve as our standing opinion to you that
the shares of Common Stock and the shares of Common Stock underlying the
Warrants are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of such shares of Common Stock to the Holders
as contemplated by the Company's Irrevocable Transfer Agent Instructions dated
_________ __, 20__.
Very truly yours,
[ISSUER'S COUNSEL]
By:_____________________
CC: [LIST NAMES OF HOLDERS]
<PAGE>
EXHIBIT B
SELLING STOCKHOLDERS
The shares of common stock being offered by the selling stockholders
are those that have been issued to the selling stockholders and those that are
issuable to the selling stockholders upon exercise of the warrants. For
additional information regarding the issuance of the common stock and the
warrants, see "Private Placement of Common Stock and Warrants" above. We are
registering the shares of common stock in order to permit the selling
stockholders to offer the shares for resale from time to time. Except for the
ownership of the common stock and the warrants issued pursuant to the Securities
Purchase Agreement, the selling stockholders have not had any material
relationship with us within the past three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership (as determined under Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder) of the shares of common stock held by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by the selling stockholders, based on their respective
ownership of shares of common stock and warrants, as of ________, 2010, assuming
exercise of the warrants held by each such selling stockholder on that date but
taking account of any limitations on exercise set forth therein.
The third column lists the shares of common stock being offered by this
prospectus by the selling stockholders and does not take into account any
limitations on exercise of the warrants set forth therein.
In accordance with the terms of a registration rights agreement with
the holders of the shares of common stock and the warrants, this prospectus
generally covers the resale of the sum of (i) the number of shares of common
stock issued to the selling stockholders and (ii) 133% of the maximum number of
shares of common stock issuable upon exercise of the warrants determined as if
the outstanding warrants were exercised in full (without regard to any
limitations on exercise contained therein) as of the trading day immediately
preceding the date this registration statement was initially filed with the SEC.
Because the exercise price of the warrants may be adjusted, the number of shares
that will actually be issued may be more or less than the number of shares being
offered by this prospectus. The fourth column assumes the sale of all of the
shares offered by the selling stockholders pursuant to this prospectus.
Under the terms of the warrants, a selling stockholder may not exercise
the warrants to the extent (but only to the extent) such selling stockholder or
any of its affiliates would beneficially own a number of shares of our common
stock which would exceed 4.9%. The number of shares in the second column
reflects these limitations. The selling stockholders may sell all, some or none
of their shares in this offering. See "Plan of Distribution."
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF MAXIMUM NUMBER OF NUMBER OF SHARES OF
COMMON STOCK OWNED SHARES OF COMMON STOCK COMMON STOCK OWNED
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING TO BE SOLD PURSUANT TO AFTER OFFERING
THIS PROSPECTUS
- --------------------------- ----------------- ----------------------- --------------
<S> <C> <C> <C>
CRANSHIRE CAPITAL, L.P.
</TABLE>
(1) Downsview Capital, Inc. ("Downsview") is the general partner of Cranshire
Capital, L.P. ("Cranshire") and consequently has voting control and investment
discretion over securities held by Cranshire. Mitchell P. Kopin ("Mr. Kopin"),
President of Downsview, has voting control over Downsview. As a result, each of
Mr. Kopin, Downsview and Cranshire may be deemed to have beneficial ownership
(as determined under Section 13(d) of the Securities Exchange Act of 1934, as
amended) of the shares owned by Cranshire which are being registered hereunder.
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock issued to the selling
stockholders and issuable upon exercise of the warrants to permit the resale of
these shares of common stock by the selling stockholders from time to time after
the date of this prospectus. We will not receive any of the proceeds from the
sale by the selling stockholders of the shares of common stock. We will bear all
fees and expenses incident to our obligation to register the shares of common
stock.
The selling stockholders may sell all or a portion of the shares of
common stock held by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions, pursuant to one or more of the following methods:
o on any national securities exchange or quotation service on
which the securities may be listed or quoted at the time of
sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems
or in the over-the-counter market;
o through the writing or settlement of options, whether such
options are listed on an options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales made after the date the Registration Statement is
declared effective by the SEC;
o broker-dealers may agree with a selling securityholder to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
<PAGE>
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares of common stock under
Rule 144 promulgated under the Securities Act of 1933, as amended, if available,
rather than under this prospectus. In addition, the selling stockholders may
transfer the shares of common stock by other means not described in this
prospectus. If the selling stockholders effect such transactions by selling
shares of common stock to or through underwriters, broker-dealers or agents,
such underwriters, broker-dealers or agents may receive commissions in the form
of discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of common stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of common
stock short and deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in
some or all of the warrants or shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending, if necessary, the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of common stock in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
To the extent required by the Securities Act and the rules and
regulations thereunder, the selling stockholders and any broker-dealer
participating in the distribution of the shares of common stock may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commission
paid, or any discounts or concessions allowed to, any such broker-dealer may be
deemed to be underwriting commissions or discounts under the Securities Act. At
the time a particular offering of the shares of common stock is made, a
prospectus supplement, if required, will be distributed, which will set forth
the aggregate amount of shares of common stock being offered and the terms of
the offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling stockholders and any discounts, commissions or concessions allowed or
re-allowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of common stock may not be sold
unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
<PAGE>
There can be no assurance that any selling stockholder will sell any or
all of the shares of common stock registered pursuant to the registration
statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, to the extent applicable, Regulation M of the Exchange Act,
which may limit the timing of purchases and sales of any of the shares of common
stock by the selling stockholders and any other participating person. To the
extent applicable, Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common
stock pursuant to the registration rights agreement, estimated to be $[ ] in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or "blue sky" laws;
provided, however, a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act in accordance
with the registration rights agreements or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act that
may arise from any written information furnished to us by the selling
stockholder specifically for use in this prospectus, in accordance with the
related registration rights agreements or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus
forms a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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