PROSPECTUS
SUPPLEMENT NO. 8
Filed
Pursuant to Rule 424(b)(3)
Registration
File No. 333-123008
OXIS
INTERNATIONAL
PROSPECTUS
SUPPLEMENT NO. 8 DATED OCTOBER 26, 2006
TO
THE
PROSPECTUS DATED APRIL 12, 2006
This
Prospectus Supplement No. 8 supplements our Prospectus dated April 12, 2006
with the following attached documents:
A. Form
8-K
Current Report dated October 26, 2006
The
attached information modifies and supersedes, in part, the information in the
prospectus. Any information that is modified or superseded in the prospectus
shall not be deemed to constitute a part of the Prospectus except as modified
or
superseded by this Prospectus Supplement.
This
Prospectus Supplement No. 8 should be read in conjunction with Prospectus
Supplement No. 1, Prospectus Supplement No. 2, Prospectus Supplement No. 3,
Prospectus Supplement No. 4, Prospectus Supplement No. 5, Prospectus Supplement
No. 6, Prospectus Supplement No. 7 and the Prospectus, each of which are
required to be delivered with this Prospectus Supplement.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE
“RISK
FACTORS” BEGINNING ON PAGE 4 OF THE PROSPECTUS, AS
SUPPLEMENTED
BY THIS PROSPECTUS SUPPLEMENT.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES
OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT IS
TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL
OFFENSE.
The
date
of this prospectus supplement is October 26, 2006.
INDEX
TO FILINGS
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Annex
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Form
8-K Current Report of the registrant filed with the Securities and
Exchange Commission on October 26, 2006
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A
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Annex
A
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C., 20549
Form
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
Of
Report (Date Of Earliest Event Reported):
10/25/2006
(Exact
Name of Registrant as Specified in its Charter)
Commission
File Number: 0-8092
DE
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94-1620407
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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323
Vintage Park Drive, Suite B, Foster City, California 94404
(Address
of Principal Executive Offices, Including Zip Code)
650-212-2568
(Registrant’s
Telephone Number, Including Area Code)
(Former
name or former address, 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
CFR
230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange
Act(17CFR240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act(17CFR240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act(17CFR240.13e-4(c))
Item
1.01. Entry
into a Material Definitive Agreement.
On
October 25, 2006, OXIS International, Inc. (“OXIS”) entered into a Securities
Purchase Agreement (“Purchase Agreement”) with four accredited investors (the
“Purchasers”). In conjunction with the signing of the Securities Purchase
Agreement, OXIS issued Secured Convertible Debentures (“Debentures”) and Series
A, B, C, D, and E Common Stock Warrants (“Warrants”) to the Purchasers, and the
parties also entered into a Registration Rights Agreement and a Security
Agreement (collectively, the “Transaction Documents”).
Pursuant
to the terms of the Purchase Agreement, OXIS issued the Debentures in an
aggregate principal amount of $1,694,250 to the Purchasers. The Debentures
are
subject to an original issue discount of 20.318% resulting in proceeds to
OXIS of $1,350,000 from the transaction. The Debentures mature on October
25,
2008, but may be prepaid by OXIS at any time provided that the common stock
issuable upon conversion and exercise of the Warrants is covered by an
effective
registration statement. The Debentures are convertible, at the option of
the
Purchasers, at any time, into shares of common stock at $0.35 per share,
as
adjusted pursuant to a full ratchet anti-dilution provision (the “Conversion
Price”). Beginning on the first of the month following the earlier of the
effective date of the registration statement to be filed pursuant to the
Registration Rights Agreement and February 1, 2007, OXIS shall amortize
the
Debenture in equal installments on a monthly basis resulting in a complete
repayment by the maturity date (the “Monthly Redemption Amounts”). The Monthly
Redemption Amounts can be paid in cash or in shares, subject to certain
restrictions. If OXIS chooses to make any Monthly Redemption Amount payment
in
shares of common stock, the price per share is the lesser of the Conversion
Price then in effect and 85% of the weighted average price for the 10 trading
days prior to the due date of the Monthly Redemption Amount.
Pursuant
to the Debenture, OXIS covenants that it will not incur indebtedness for
borrowed money, other than its current Bridge Bank Promissory Note and
its
Promissory Note with Steve Guillen. OXIS also covenants that it will not
pledge,
grant or convey any new liens on its assets. The obligation to pay all
unpaid
principal will be accelerated upon an event of default, including upon
failure
to perform its obligations under the Debenture covenants, failure to make
required payments, default on any of the Transaction Documents or any other
material agreement, lease, document or instrument to which OXIS is obligated,
the bankruptcy of OXIS or related events. The Purchasers have a right of
first
refusal to participate in up to 100% of any future financing undertaken
by OXIS
until the later of the date that the Debentures are no longer outstanding
and
the one year anniversary of the effective date of the registration statement.
OXIS is restricted from issuing shares of common stock or instruments
convertible into common stock for 90 days after the effective date of the
registration statement with certain exceptions. OXIS is also prohibited
from
effecting any subsequent financing involving a variable rate transaction.
In
addition, until such time as any Purchaser holds any of the securities
issued in
the Debenture transaction, if OXIS issues or sells any common stock or
instruments convertible into common stock which a Purchaser reasonably
believes
is on terms more favorable to such investors than the terms pursuant to
the
Transaction Documents, OXIS is obligated to amend the terms of the Transaction
Documents to such Purchaser the benefit of such better terms. OXIS may
prepay
the entire outstanding principal amount of the Debentures, plus accrued
interest
and other amounts payable, at its option at any time without penalty, provided
that a registration statement is available for the resale of shares underlying
the Debentures and Warrants, as more fully described in the Debenture.
The
purpose of this Debenture transaction is to provide the corporation with
intermediate term financing as it seeks longer term financing.
On
October
25, 2006 in conjunction with the signing of the Securities Purchase Agreement,
OXIS issued to the Purchasers five year Series A Common Stock Purchase
Warrants
to purchase an aggregate of 2,420,357 shares of common stock at an initial
exercise price of $0.35 per share, one year Series B Common Stock Purchase
Warrants to purchase 2,420,357 shares of common stock at an initial exercise
price of $0.385 per share, and two year Series C Common Stock Purchase
Warrants
to purchase an aggregate of 4,840,714 shares of common stock at an initial
exercise price of $0.35 per share. In addition, OXIS issued to the Purchasers
Series D and E Common Stock Purchase Warrants which become exercisable
on a
pro-rata basis only upon the exercise of the Series C warrants. The six
year
Series D Common Stock Purchase Warrants to purchase 2,420,357 shares of
common
stock have an initial exercise price of $0.35 per share. The six year Series
D
Common Stock Purchase Warrants to purchase 2,420,357 shares of common stock
have
an initial exercise price of $0.385 per share. The initial exercise prices
for
each warrant are adjustable pursuant to a full ratchet anti-dilution provision
and upon the occurrence of a stock split or a related event.
Pursuant
to
the Registration Rights Agreement, OXIS must file a registration statement
covering the public resale of the shares underlying the Series A, B, C,
D and E
Warrants and the Debentures within 45 days of the closing of the transaction
and
cause the registration to be declared effective within 120 days of the
closing
date. Cash liquidated damages equal to 2% of the face value of the Debentures
per month are payable to the purchasers for any failure to timely file
or obtain
an effective registration statement.
Pursuant
to the Security Agreement, OXIS agreed to grant the purchasers, pari passu,
a
security interest in certain property of OXIS, including cooperating in
the
filing of perfected first priority liens in the collateral. OXIS also agreed
to
pledge its respective ownership interests in its wholly-owned subsidiaries,
OXIS
Therapeutics, OXIS Isle of Man, and its partial subsidiary, BioCheck, Inc.
OXIS
Therapeutics and OXIS Isle of Man also provided a subsidiary guarantee
to the
Purchasers in connection with the transaction.
The
foregoing summary of the material terms of the Transaction Documents are
qualified in their entirety by the text of the Transaction Documents attached
as
Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to this Current Report on Form
8-K and
incorporated herein by reference.
Item
1.02. Termination
of a Material Definitive Agreement.
On
October 25, 2006, OXIS prepaid the principal, accrued interest and legal
fees
due pursuant to the Renewal and Modification Promissory Note dated June
2, 2006
(the “Renewal Note”) with Fagan Capital, Inc. The Renewal Note had a principal
amount of $405,600 and interest accrued at 8% per annum. OXIS was also
obligated
to repay Fagan Capital the sum of $7,500 for legal expenses. No payments
of
interest or principal were required prior to the maturity date, June 1,
2007. In
conjunction with the issuance of the Renewal Note, on July 25, 2006 OXIS
also
issued to Fagan Capital a common stock purchase warrant to purchase 1,158,857
shares of common stock at an initial exercise price of $0.35 per share.
The
exercise price under the warrant is adjustable pursuant to certain anti-dilution
provisions and upon the occurrence of a stock split. The common stock purchase
warrant has an expiration date of June 1, 2014. Pursuant to a Note Pay
Off
Agreement between OXIS and Fagan Capital, Inc. governing the prepayment
of the
Renewal Note, OXIS entered into a Registration Rights Agreement with Fagan
Capital covering the shares underlying the common stock purchase warrant
on
October 23, 2006.
Item
2.03. Creation
of a Direct Financial Obligation.
Reference
is made to the disclosures under Item 1.01 above.
Item
3.02 Unregistered
Sales of Equity Securities.
On
October 25, 2006, OXIS issued Secured Convertible Debentures in an aggregate
principal amount of $1,694,250 to the Purchasers. The Debentures are subject
to
an original issue discount of 20.318% resulting in proceeds to OXIS of
$1,350,000 from the transaction. Also, in connection with the foregoing,
OXIS
issued Series A, B, C, D and E Warrants for the purchase of an aggregate
of
approximately 14.5 million shares of OXIS common stock, at an initial exercise
price of $0.35 per share, subject to adjustment as provided therein. Reference
is made to the disclosures under Item 1.01 above, and to the attached Exhibits.
These
securities were offered to accredited investors in reliance on an exemption
from
the registration requirements of the Securities Act of 1933 (the “Securities
Act”) under Regulation D. The offering has not been registered under the
Securities Act or any state securities of “blue sky” laws, and the securities
may not be offered or sold absent registration or an applicable exemption
from
the registration requirements of the Securities Act and applicable state
securities laws. Under the terms of the registration rights agreement,
and as
described in Item 1.01 above, OXIS agreed, subject to certain terms and
conditions, to file a registration statement under the Securities Act covering
the resale of the shares issuable upon conversion of the Debentures and
exercise
of the Warrants.
Item
8.01 Other
Events.
A
member
of the OXIS board of directors, Steven T. Guillen, who was terminated as
the
President and Chief Executive Officer of OXIS on September 15, 2006, filed
a
lawsuit against OXIS and up to 25 unnamed additional defendants. To the
date of
this Current Report, the complaint has not been served upon OXIS or any
other
defendant. The complaint alleges breaches of contract relating to Mr. Guillen’s
employment agreement and a promissory note that is in default, breach of
implied
covenant of good faith and fair dealing, wrongful termination and violation
of
the California Labor Code in relation to the non-payment of back pay. The
Promissory Note issued by OXIS to Steven Guillen on March 10, 2006 in the
principal amount of $200,000 with accrued interest at the maturity date
in the
amount of $7,000 has been in default since September 10, 2006, the maturity
date. OXIS intends to utilize proceeds from the debenture transaction described
in Item 1.01 to repay Mr. Guillen the amounts owed pursuant to the defaulted
Promissory Note as well as the amounts payable pursuant to the terms of
Mr.
Guillen’s employment agreement.
Item
9.01. Financial
Statements and Exhibits.
(d)
Exhibits
10.1 Form
of
Securities Purchase Agreement dated October 25, 2006.
10.2 Form
of
Secured Convertible Debenture dated October 25, 2006.
10.3 Form
of
Series A, B, C, D, E Common Stock Purchase Warrant dated October 25,
2006.
10.4 Form
of
Registration Rights Agreement dated October 25, 2006.
10.5 Form
of
Security Agreement dated October 25, 2006.
Signature(s)
Pursuant
to the Requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the Undersigned hereunto
duly authorized.
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OXIS
INTERNATIONAL, INC. |
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Date:
October 25, 2006 |
By: |
/s/ MICHAEL
D. CENTRON |
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Michael
D. Centron |
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Title:
Vice
President and Chief Financial
Officer |
Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of October 25, 2006 among Oxis International, Inc., a Delaware
corporation (the “Company”),
and
each purchaser identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”)
and
Rule 506 promulgated thereunder, the Company desires to issue and sell to
each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1
Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Debentures (as defined herein), and (b) the following terms have the
meanings indicated in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as
such
terms are used in and construed under Rule 144 under the Securities
Act.
With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Business
Day”
means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State
of
New York are authorized or required by law or other governmental action to
close.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions
precedent
to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the
holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that
is at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Company
Counsel”
means
Richardson & Patel LLP, with offices located at 10900 Wilshire Blvd. Suite
500, Los Angeles, CA 90024.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Debentures.
“Debentures”
means,
the Original Issue Discount Secured Convertible Debentures due, subject to
the
terms therein, 2 years from their date of issuance, issued by the Company
to the
Purchasers hereunder, in the form of Exhibit
A
attached
hereto.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“Escrow
Agent”
shall
have the meaning ascribed to such term in the Escrow Agreement.
“Escrow
Agreement”
shall
mean the Escrow Agreement of event date herewith among the Company, the
Purchasers and the Escrow Agent.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
or
directors of the Company pursuant to any stock or option plan duly adopted
by a
majority of the non-employee members of the Board of Directors of the Company
or
a majority of the members of a committee of non-employee directors
established
for such purpose, (b) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities
have
not been amended since the date of this Agreement to increase the number
of such
securities or to decrease the exercise, exchange or conversion price of such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the
Company, provided any such issuance shall only be to a Person which is, itself
or through its subsidiaries, an operating company in a business synergistic
with
the business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction
in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities,
and
(d) up to 3,500,000 shares of Common Stock and Common Stock Equivalents (subject
to adjustment for forward and reverse stock splits, stock dividends and the
like), in the aggregate, issuable in lieu of cash compensation to executive
officers and key employees and management, consistent with past business
practice, provided, however, the Company shall provide each Purchaser with
prior
written notice of any such proposed issuance to executive officers and key
employees and management.
“FWS”
means
Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall
have the meaning ascribed to such term in Section 3.1(bb).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Principal
Amount”
shall
mean, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto and next to the heading “Principal
Amount”, in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.255.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Underlying Shares by each
Purchaser as provided for in the Registration Rights Agreement.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures, ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price is at all
times
on and after the date of determination 50% of the then Conversion Price on
the
Trading Day immediately prior to the date of determination.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.
“Security
Agreement”
means
the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit
E
attached
hereto.
“Security
Documents”
shall
mean the Security Agreement, the Subsidiary Guarantees and any other documents
and filing required thereunder in order to grant the Purchasers a first priority
security interest in the assets of the Company and the Subsidiaries as provided
in the Security Agreement, including all UCC-1 filing receipts.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Subscription
Amount”
means,
as
to each Purchaser, the aggregate amount
to be
paid for Debentures and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount”, in United States Dollars and in immediately available
funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Subsidiary
Guarantee”
means
the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor
of
the Purchasers, in the form of Exhibit
F
attached
hereto.
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
the Escrow Agreement, the Security Agreement, the Subsidiary Guarantee, all
schedules and exhibits hereto and thereto and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.
“Transfer
Agent”
means
Computershare,
with
a
mailing address of
250
Royall St. Canton, MA 02021,312 588-4990,
and any
successor transfer agent of the Company.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion or redemption
of
the Debentures and upon exercise of the Warrants and issued and issuable
in lieu
of the cash payment of principal on the Debentures in accordance with the
terms
of the Debentures.
“Variable
Rate Transaction”
shall
have the meaning ascribed to such term in Section 4.14(b).
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from
9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price
of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC
Bulletin Board and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable
to the
Company, the fees and expenses of which shall be paid by the
Company.
“Warrants”
means
collectively the Common Stock purchase warrants delivered to the Purchasers
at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be in
the form of Exhibit C
attached
hereto.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement
by
the parties hereto, the Company agrees to sell, and each Purchaser agrees
to
purchase in the aggregate, severally and not jointly, up to $1,694,250 in
principal amount of the Debentures. Each Purchaser shall deliver to the Escrow
Agent, via wire transfer or a certified check, immediately available funds
equal
to its Subscription Amount and the Company shall deliver to each Purchaser
its
respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
and the Company and each Purchaser shall deliver the other items set forth
in
Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions
set
forth in Sections 2.2 and 2.3,
the
Closing shall occur at the offices of FWS or such other location as the
parties
shall mutually agree.
2.2 Deliveries
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to the
Escrow
Agent with respect to each Purchaser the following:
|
(i)
|
this
Agreement duly executed by the
Company;
|
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
D
attached
hereto;
(iii) a
Debenture with a Principal Amount equal to such Purchaser’s Subscription Amount
multiplied by 1.255, registered in the name of such Purchaser;
(iv) a
Warrant
(the “Series
A Warrant”)
registered in the name of such Purchaser to purchase up to a number of
shares of
Common Stock equal to 50% of the Principal Amount of the Debenture issuable
to
such Purchaser divided by $0.35, with an exercise price equal to $0.35,
subject
to adjustment therein, which Warrants shall be exercisable immediately,
and
shall have a term of exercise equal to five years;
(v) a
Warrant
(the “Series
B Warrant”)
registered in the name of such Purchaser to purchase up to a number of
shares of
Common Stock equal to 50% of the Principal Amount of the Debenture issuable
to
such Purchaser divided by $0.35, with an exercise price equal to $0.385,
subject
to adjustment therein, which Warrants shall be exercisable immediately,
and
shall have a term of exercise equal to one year;
(vi) a
Warrant
(the “Series
C Warrant”)
registered in the name of such Purchaser to purchase up to a number of
shares of
Common Stock equal to 100% of the Principal Amount of the Debenture issuable
to
such Purchaser divided by $0.35, with an exercise price equal to $0.35,
subject
to adjustment therein, which Warrants shall be exercisable immediately,
and have
a term of exercise equal to the earlier of the one year anniversary of
the
Effective Date and two years from their issuance;
(vii) a
Warrant
(the “Series
D Warrant”)
registered in the name of such Purchaser to purchase up to a number of
shares of
Common Stock equal to 50% of the Principal Amount of the Debenture issuable
to
such Purchaser divided by $0.35, with an exercise price equal to $0.35,
subject
to adjustment therein, which Warrants shall be exercisable (on a pro-rata
basis)
upon the exercise of the Series C Warrants and have a term of exercise
equal to
the earlier of five years following the date such warrants are exercisable
or
six years following their issuance;
(viii) a
Warrant
(the “Series
E Warrant”)
registered in the name of such Purchaser to purchase up to a number of
shares of
Common Stock equal to 50% of the Principal Amount of the Debenture issuable
to
such Purchaser divided by $0.35, with an exercise price equal to $0.385,
subject
to adjustment therein, which Warrants shall be exercisable (on a pro-rata
basis)
upon the exercise of the Series C Warrants and have a term of exercise
equal to
the earlier of five years following the date such warrants are exercisable
or
six years following their issuance;
(ix) the
Escrow Agreement duly executed by the Company;
(x) the
Security Agreement, duly executed by the Company and each Subsidiary,
along with
all of the Security Documents, including the Subsidiary Guarantee, duly
executed
by the parties thereto (provided, however, OXIS Health Products, Inc.,
a
Delaware corporation, OXIS International S.A., a French company, OXIS
Acquisition Corporation, a Delaware corporation and OXIS Instruments,
Inc., a
Pennsylvania, all of which do not own any assets that are material to
the value
or operation of the Company, and BioCheck, Inc., a California corporation
that
the Company owns a 51% equity interest in, shall not be required to execute
the
Security Agreement or Subsidiary Guarantee at Closing);
(xi) a
lock-up
agreement, in the form attached hereto as Exhibit
G,
duly
executed by all officers, directors and 10% stockholders of the Company,
other
than Axonyx, Inc., a Nevada corporation and Mr. Guillen;
(xii) a
certification, in the form attached hereto as Exhibit
H,
duly
executed by all officers and directors of the Company other than Mr.
Guillen;
and
(xiii) the
Registration Rights Agreement duly executed by the Company.
(b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered to
the
Escrow Agent the following:
(i) this
Agreement duly executied
by such Purchaser;
(ii)
such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
the Escrow Agreement ;
(iii)
the
Security Agreement duly executed by such Purchaser;
(iv)
the
Escrow Agreement duly executed by each Purchaser; and
(v)
the
Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are
subject
to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of
the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to be
performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b) of
this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with
the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of
the
representations and warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
(iii) the
delivery of a payoff and release letter from Fagan Capital, Inc. with
respect to
that certain Renewal
and Modification Promissory Note of the Company in the principal amount
of
$405,600 dated June 2, 2006 (the “Fagan
Note”),
in form
and substance satisfactory to the Purchasers;
(iv) the
delivery
by the Company of the items set forth in Section 2.2(a) of this Agreement;
(v) there
shall
have been no Material Adverse Effect with respect to the Company since
the date
hereof; and
(vi) from
the
date hereof to the Closing Date, trading in the Common Stock shall not
have been
suspended by the Commission or the Company’s principal Trading Market (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any
time
prior to the Closing Date, trading in securities generally as reported
by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices
shall
not have been established on securities whose trades are reported by
such
service, or on any Trading Market, nor shall a banking moratorium have
been
declared either by the United States or New York State authorities nor
shall
there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its
effect on,
or any material adverse change in, any financial market which, in each
case, in
the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable
to purchase the Debentures at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”),
which
Disclosure Schedules shall be deemed a part hereof and to qualify any
representation or warranty otherwise made herein to the extent of such
disclosure, the Company hereby makes the following representations and
warranties to each Purchaser:
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other
equity
interests of each Subsidiary free and clear of any Liens, and all of
the issued
and outstanding shares of capital stock of each Subsidiary are validly
issued
and are fully paid, non-assessable and free of preemptive and similar
rights to
subscribe for or purchase securities. If the Company has no subsidiaries,
all
other references to the Subsidiaries or any of them in the Transaction
Documents
shall be disregarded. As used herein and all other Transaction Documents,
the
term “Subsidiaries” shall not include BioCheck, Inc., a California corporation
(“Biocheck”)
that
the Company owns a 51% equity interest in, other than as to representations,
warranties and covenants of the Company as to its ownership of Biocheck
and
pledge of its interest in Biocheck to the Purchasers as contemplated
by the
Security Agreement. The following Subsidiaries of the Company are inactive
and
do not conduct any operations or own any assets that are material to
the value
or operation of the Company (on a consolidated basis): OXIS Health Products,
Inc., a Delaware corporation, OXIS International S.A., a French company,
OXIS
Acquisition Corporation, a Delaware corporation and OXIS Instruments,
Inc., a
Pennsylvania corporation.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or
otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the
requisite power and authority to own and use its properties and assets
and to
carry on its business as currently conducted, except as set forth on
Schedule
3.1(b).
Neither
the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a
foreign corporation or other entity in each jurisdiction in which the
nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as
the case may be, could not have or reasonably be expected to result in
(i) a
material adverse effect on the legality, validity or enforceability of
any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise)
of
the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii)
or (iii),
a “Material
Adverse Effect”)
and no
Proceeding has
been
instituted in any such jurisdiction revoking, limiting or curtailing
or seeking
to revoke, limit or curtail such power and authority or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into
and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder.
The
execution and delivery of each of the Transaction Documents by the Company
and
the consummation by it of the transactions contemplated hereby and thereby
have
been duly authorized by all necessary action on the part of the Company
and no
further action is required by the Company, its board of directors or
its
stockholders in connection therewith other than in connection with the
Required
Approvals. Each Transaction Document has been (or upon delivery will
have been)
duly executed by the Company and, when delivered in accordance with the
terms
hereof and thereof, will constitute the valid and binding obligation
of the
Company enforceable against the Company in accordance with its terms
except (i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief
or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the
Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate
any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii)
conflict with, or constitute a default (or an event that with notice
or lapse of
time or both would become a default) under, result in the creation of
any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or
otherwise) or other understanding to which the Company or any Subsidiary
is a
party or by which any property or asset of the Company or any Subsidiary
is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or
result in a violation of any law, rule, regulation, order, judgment,
injunction,
decree or other restriction of any court or governmental authority to
which the
Company or a Subsidiary is subject (including federal and state securities
laws
and regulations), or by which any property or asset of the Company or
a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and
(iii), such as could not have or reasonably be expected to result in
a Material
Adverse Effect.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization
or order
of, give any notice to, or make any filing or registration with, any
court or
other federal, state, local or other governmental authority or other
Person in
connection with the execution, delivery and performance by the Company
of the
Transaction Documents, other than (i) filings required pursuant to
Section
4.6, (ii) the filing with the Commission of the Registration Statement,
(iii)
the notice and/or application(s) to each applicable Trading Market
for the
issuance and sale of the Securities and the listing of the Underlying
Shares for
trading thereon in the time and manner required thereby and (iv) the
filing of
Form D with the Commission and such filings as are required to be made
under
applicable state securities laws (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued,
fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents.
The
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free
and clear
of all Liens imposed by the Company. The Company has reserved from its
duly
authorized capital stock a number of shares of Common Stock for issuance
of the
Underlying Shares at least equal to the Required Minimum on the date
hereof.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees
pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the
most
recently filed periodic report under the Exchange Act. No Person has
any right
of first refusal, preemptive right, right of participation, or any similar
right
to participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there
are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire, any shares of Common Stock,
or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of Common
Stock
or Common Stock Equivalents. The issuance and sale of the Securities
will not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right of
any holder
of Company securities to adjust the exercise, conversion, exchange or
reset
price under any of such securities. All of the outstanding shares of
capital
stock of the Company are validly issued, fully paid and nonassessable,
have been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights
or
similar rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale
of the
Securities. There are no stockholders agreements, voting agreements or
other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among
any of
the Company’s stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other
documents
required to be filed by the Company under the Securities Act and the
Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years
preceding the date hereof (or such shorter period as the Company was
required by
law or regulation to file such material) (the foregoing materials, including
the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing
and has
filed any such SEC Reports prior to the expiration of any such extension.
As of
their respective dates, the SEC Reports complied in all material respects
with
the requirements of the Securities Act and the Exchange Act, as applicable,
and
none of the SEC Reports, when filed, 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. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during
the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or
the notes
thereto and except that unaudited financial statements may not contain
all
footnotes required by GAAP, and fairly present in all material respects
the
financial position of the Company and its consolidated Subsidiaries as
of and
for the dates thereof and the results of operations and cash flows for
the
periods then ended, subject, in the case of unaudited statements, to
normal,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within the
SEC
Reports, except as specifically disclosed in a subsequent SEC Report
filed prior
to the date hereof, (i) there has been no event, occurrence or development
that
has had or that could reasonably be expected to result in a Material
Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent
or
otherwise) other than (A) trade payables and accrued expenses incurred
in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company
has not
altered its method of accounting, (iv) the Company has not declared or
made any
dividend or distribution of cash or other property to its stockholders
or
purchased, redeemed or made any agreements to purchase or redeem any
shares of
its capital stock and (v) the Company has not issued any equity securities
to
any officer, director or Affiliate, except pursuant to existing Company
stock
option plans. The Company does not have pending before the Commission
any
request for
confidential treatment of information. Except for the issuance of the
Securities
contemplated by this Agreement or as set forth on Schedule
3.1(i),
no
event, liability or development has occurred or exists with respect to
the
Company or its Subsidiaries or their respective business, properties,
operations
or financial condition, that would be required to be disclosed by the
Company
under applicable securities laws at the time this
representation
is made that has not been publicly disclosed at least one Trading Day
prior to
the date that this representation is made.
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before
or by any
court, arbitrator, governmental or administrative agency or regulatory
authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if
there were
an unfavorable decision, have or reasonably be expected to result in
a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director
or
officer thereof, is or has been the subject of any Action involving a
claim of
violation of or liability under federal or state securities laws or a
claim of
breach of fiduciary duty. There has not been, and to the knowledge of
the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is
imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company, and neither the Company or any of its
Subsidiaries is a party to a collective bargaining agreement, and the
Company
and its Subsidiaries believe that their relationships with their employees
are
good. No executive officer, to the knowledge of the Company, is, or is
now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive
covenant, and the continued employment of each such executive officer
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 U.S. federal, state, local and foreign laws and regulations
relating to
employment and employment practices, terms and conditions of employment
and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation
of (and
no event has occurred that has not been waived that, with notice or lapse
of
time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim
that it
is in default under or that it is in violation of, any indenture, loan
or credit
agreement or any other agreement or instrument to which it is a party
or by
which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of any
court,
arbitrator or governmental body, or (iii) is or has been
in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local
laws
applicable to its business and all such laws that affect the environment,
except
in each case as could not have or reasonably be expected to result
in a Material
Adverse Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations
and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could not
have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to
Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple
to all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property
owned by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with
the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes,
the
payment of which is neither delinquent nor subject to penalties. Any
real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases with which
the
Company and the Subsidiaries are in compliance.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents,
patent
applications, trademarks, trademark applications, service marks, trade
names,
trade secrets, inventions, copyrights, licenses and other intellectual
property
rights and similar rights necessary or material for use in connection
with their
respective businesses as described in the SEC Reports and which the failure
to
so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a notice (written
or
otherwise) that the Intellectual Property Rights used by the Company
or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge
of the Company, all such Intellectual Property Rights are enforceable
and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable
security
measures to protect the secrecy, confidentiality and value of all of
their
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expect to have a Material Adverse
Effect.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither
the
Company nor any
Subsidiary
has any reason to believe that it will not be able 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
without a significant increase in cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors of
the
Company and, to the knowledge of the Company, none of the employees of
the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and 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 officer,
director or such employee or, to the knowledge of the Company, any entity
in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of
$60,000
other than (i) for payment of salary or consulting fees for services
rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for
other employee benefits, including stock option agreements under any
stock
option plan of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Sarbanes-Oxley
Act
of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting
controls
sufficient to provide reasonable assurance that (i) transactions are
executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets
is
compared with the existing assets at reasonable intervals and appropriate
action
is taken with respect to any differences. The Company has established
disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures
to ensure that information required to be disclosed by the Company in
the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the
Exchange
Act the conclusions of the certifying officers about the effectiveness
of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes
in the
Company’s
internal control over financial reporting (as such term is defined in
the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
(s) Certain
Fees.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have
no
obligation with respect to any fees or with respect to any claims made
by or on
behalf of other Persons for fees of a type contemplated in this Section
that may
be due in connection with the transactions contemplated by the Transaction
Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, no registration under the Securities Act is required
for
the offer and sale of the Securities by the Company to the Purchasers
as
contemplated hereby. The issuance and sale of the Securities hereunder
does not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become
subject to the Investment Company Act of 1940, as amended.
(v) Registration
Rights.
Other
than each of the Purchasers, no Person has any right to cause the Company
to
effect the registration under the Securities Act of any securities of
the
Company.
(w) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
Exchange Act, and the Company has taken no action designed to, or which
to its
knowledge is likely to have the effect of, terminating the registration
of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration.
The Company has not, in the 12 months preceding the date hereof, received
notice
from any Trading Market on which the Common Stock is or has been listed
or
quoted to the effect that the Company is not in compliance with the listing
or
maintenance requirements of such Trading Market. The Company is, and
has no
reason to believe that it will not in the foreseeable future continue
to be, in
compliance with all such listing and maintenance requirements.
(x) Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action, if
any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state
of
incorporation that is or could become applicable to the Purchasers as
a result
of the Purchasers
and the Company fulfilling their obligations or exercising their rights
under
the Transaction Documents, including without limitation as a result of
the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities.
(y) Disclosure.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that
neither it
nor any other Person acting on its behalf has provided any of the Purchasers
or
their agents or counsel with any information that it believes constitutes
or
might constitute material, nonpublic information. The Company understands
and
confirms that the Purchasers will rely on the foregoing representation
in
effecting transactions in securities of the Company. All disclosure furnished
by
or on behalf of the Company to the Purchasers regarding the Company,
its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, 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 light of the circumstances
under
which they were made, not misleading. The press releases disseminated
by the
Company during the twelve months preceding the date of this Agreement
taken as a
whole do not 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, in light of the circumstances under which they were made
and when
made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in
Section 3.2 hereof.
(z) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor any
Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be
integrated
with prior offerings by the Company for purposes of the Securities Act
or any
applicable shareholder approval provision of any Trading Market on which
any of
the securities of the Company are listed or designated.
(aa) Solvency.
Based
on the financial condition of the Company as of the Closing Date after
giving
effect to the receipt by the Company of the proceeds from the sale of
the
Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect
of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted
and as
proposed to be conducted including its capital needs taking into account
the
particular capital requirements of the business conducted by the Company,
and
projected capital requirements and capital availability thereof; and
(iii) the
current cash flow of the Company, together with the proceeds the Company
would
receive, were it to liquidate all of its assets, after taking into account
all
anticipated uses of the cash, would be sufficient to pay all amounts
on or in
respect of its liabilities when such amounts are required to be paid.
The
Company does not intend to incur debts beyond
its ability to pay such debts as they mature (taking into account the
timing and
amounts of cash to be payable on or in respect of its debt). The Company
has no
knowledge of any facts or circumstances which lead it to believe that
it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any
jurisdiction
within one year from the Closing Date. Schedule
3.1(aa)
sets
forth as of the dates thereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess
of $50,000
(other than trade accounts payable incurred in the ordinary course of
business),
(b) all guaranties, endorsements and other contingent obligations in
respect of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present
value of
any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or
reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income
and
franchise tax returns and has paid or accrued all taxes shown as due
thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(cc) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered
or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to
the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(dd) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other
person
acting on behalf of the Company, has (i) directly or indirectly, used
any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to
any
foreign or domestic political parties or campaigns from corporate funds,
(iii)
failed to disclose fully any contribution made by the Company (or made
by any
person acting on its behalf of which the Company is aware) which is in
violation
of law, or (iv) violated in any material respect any provision of the
Foreign
Corrupt Practices Act of 1977, as amended.
(ee) Accountants.
The
Company’s accountants are set forth on Schedule
3.1(ee)
of the
Disclosure Schedule. To the knowledge of the Company, such accountants,
who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2006, are a registered public accounting firm
as
required by the Exchange Act.
(ff) Seniority.
As of
the Closing Date, no Indebtedness or other claim against the Company
is senior
to the Debentures in right of payment, whether with respect to interest
or upon
liquidation or dissolution, or otherwise, other than indebtedness
secured
by
purchase money security interests (which is senior only as to underlying
assets
covered thereby) and capital lease obligations (which is senior only
as to the
property covered thereby).
(gg) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and
lawyers
formerly or presently employed by the Company and the Company is current
with
respect to any fees owed to its accountants and lawyers.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting
solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given
by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby
is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely
on the
independent evaluation of the transactions contemplated hereby by the
Company
and its representatives.
(ii) Acknowledgment
Regarding Purchasers Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
by the Company (i) that none of the Purchasers have been asked to agree,
nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or
short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii)
that past
or future open market or other transactions by any Purchaser, including
Short
Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company’s
publicly-traded securities; (iii) that any Purchaser, and counter-parties
in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with
or control
over any arm’s length counter-party in any “derivative” transaction.
The
Company further understands and acknowledges that (a) one or more Purchasers
may
engage in hedging activities at various times during the period that
the
Securities are outstanding, including, without limitation, during the
periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could reduce
the
value of the existing stockholders' equity
interests in the Company at and after the time that the hedging activities
are
being conducted. The Company acknowledges that such aforementioned hedging
activities do not constitute a breach of any of the Transaction
Documents.
(jj) Regulation
M Compliance.
The Company has not, and to its knowledge no one acting on its behalf
has, (i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
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 of the Company or (iii) paid or agreed to pay to any Person
any
compensation for soliciting another to purchase any other securities
of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to
the Company’s placement agent in connection with the placement of the
Securities
(kk) FDA.
As to
each product subject to the jurisdiction of the U.S. Food and Drug
Administration (“FDA”)
under
the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
thereunder (“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 in compliance
with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket 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
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 premarket 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, and which,
either individually or in the aggregate, would have a Material Adverse
Effect.
The
properties, business and operations of the Company have been and are
being
conducted in all material respects in accordance with all applicable
laws, rules
and regulations of the FDA. The Company has not 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
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.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and
warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise
to carry
out its obligations hereunder and thereunder. The execution, delivery
and
performance by such Purchaser of the transactions contemplated by this
Agreement
have been duly authorized by all necessary corporate or similar action
on the
part of such Purchaser. Each Transaction Document to which it is a party
has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally
binding
obligation of such Purchaser, enforceable against it in accordance with
its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive
relief or other equitable remedies and (iii) insofar as indemnification
and
contribution provisions may be limited by applicable law.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state
securities
law and is acquiring the Securities as principal for its own account
and not
with a view to or for distributing or reselling such Securities or any
part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities
in
violation of the Securities Act or any applicable state securities law
and has
no direct or indirect arrangement or understandings with any other persons
to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities pursuant
to the Registration Statement or otherwise in compliance with applicable
federal
and state securities laws) in violation of the Securities Act or any
applicable
state securities law. Such Purchaser is acquiring the Securities hereunder
in
the ordinary course of its business.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date
hereof
it is, and on each date on which it exercises any Warrants or converts
any
Debentures it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act
or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer
under
Section 15 of the Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of
such
investment.
Such Purchaser is able to bear the economic risk of an investment in
the
Securities and, at the present time, is able to afford a complete loss
of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published
in any
newspaper, magazine or similar media or broadcast over television or
radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not directly
or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any transaction, including
Short
Sales, in the securities of the Company during the period commencing
from
the time
that such Purchaser first received a term sheet (written or oral) from
the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion
Time”).
Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions
of such
Purchaser's assets and the portfolio managers have no direct knowledge
of the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser's assets, the representation set forth above shall only
apply
with respect to the portion of assets managed by the portfolio manager
that made
the investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this
transaction).
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide
to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to
be bound
by
the terms of this Agreement and shall have the rights of a Purchaser
under this
Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO
THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time
pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms
of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the
pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as
a pledgee
or secured party of Securities may reasonably request in connection with
a
pledge or transfer of the Securities, including, if the Securities are
subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3)
under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (i) while a registration
statement
(including the Registration Statement) covering the resale of such security
is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule
144,
or (iii) if such Underlying Shares are eligible for sale under Rule 144(k),
or
(iv) if such legend is not required under applicable requirements of
the
Securities Act (including judicial interpretations and pronouncements
issued by
the staff of the Commission). The Company shall cause its counsel to
issue a
legal opinion to the Transfer Agent promptly after the Effective Date
if
required by the Transfer Agent to effect the removal of the legend hereunder.
If
all or any portion of a Debenture or
Warrant
is converted or exercised (as applicable) at a time when there is an
effective
registration statement to cover the resale of the Underlying Shares,
or if such
Underlying Shares may be sold under Rule 144(k) or if such legend is
not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of
the Commission) then such Underlying Shares shall be issued free of all
legends.
The Company agrees that following the Effective Date or at such time
as such
legend is no longer required under this Section 4.1(c), it will, no later
than
three Trading Days following the delivery by a Purchaser to the Company
or the
Transfer Agent of a certificate representing Underlying Shares, as applicable,
issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The
Company may
not make any notation on its records or give instructions to the Transfer
Agent
that enlarge the restrictions on transfer set forth in this Section.
Certificates for Underlying Shares subject to legend removal hereunder
shall be
transmitted by the Transfer Agent to the Purchasers by crediting the
account of
the Purchaser’s prime broker with the Depository Trust Company
System.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock
on the
date such Securities are submitted to the Transfer Agent) delivered for
removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading
Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun
to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit
such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of
specific performance and/or injunctive relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees
that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance
with the
plan of distribution set forth therein.
4.2 Acknowledgment
of
Dilution.
The
Company acknowledges that the issuance of the Securities may result in
dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that
its
obligations under the Transaction Documents, including without limitation
its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents,
are unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such
dilution
or any claim the Company may have against any Purchaser and regardless
of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing
of Information.
As long
as any Purchaser owns Securities, the Company covenants to timely file
(or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date
hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities,
if the
Company is not required to file reports pursuant to the Exchange Act,
it will
prepare and furnish to the Purchasers and make publicly available in
accordance
with Rule 144(c) such information as is required for the Purchasers to
sell the
Securities under Rule 144. The Company further covenants that it will
take such
further action as any holder of Securities may reasonably request, to
the extent
required from time to time to enable such Person to sell such Securities
without
registration under the Securities Act within the requirements of the
exemption
provided by Rule 144.
4.4 Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the
Securities
Act) that would be integrated with the offer or sale of the Securities
in a
manner that would require the registration under the Securities Act of
the sale
of the Securities to the Purchasers or that would be integrated with
the offer
or sale of the Securities for purposes of the rules and regulations of
any
Trading Market.
4.5 Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the form of Notice
of
Conversion included in the Debentures set
forth
the totality of the procedures required of the Purchasers in order to
exercise
the Warrants or convert the Debentures. No additional legal opinion or
other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. The Company shall honor exercises
of
the Warrants and conversions of the Debentures and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set
forth in
the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity.
The
Company shall, by 8:30 a.m. New York City time on the Trading Day following
the
date hereof, issue a Current Report on Form 8-K disclosing the material
terms of
the transactions contemplated hereby and attaching the Transaction Documents
thereto. The Company and each Purchaser shall consult with each other
in issuing
any other press releases with respect to the transactions contemplated
hereby,
and neither the Company nor any Purchaser shall issue any such press
release or
otherwise make any such public statement without the prior consent of
the
Company, with respect to any press release of any Purchaser, or without
the
prior consent of each Purchaser, with respect to any press release of
the
Company, which consent shall not unreasonably be withheld or delayed,
except if
such disclosure is required by law, in which case the disclosing party
shall
promptly provide
the other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose
the name
of any Purchaser, or include the name of any Purchaser in any filing
with the
Commission or any regulatory agency or Trading Market, without the prior
written
consent of such Purchaser, except (i) as required by federal securities
law in
connection with (A) any registration statement
contemplated
by the Registration Rights Agreement and (B) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and
(ii) to
the extent such disclosure is required by law or Trading Market regulations,
in
which case the Company shall provide the Purchasers with prior notice
of such
disclosure permitted under this subclause (ii).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, with the consent of
the
Company, any other Person, that any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill (including
any
distribution under a rights agreement) or similar anti-takeover plan
or
arrangement in effect or hereafter adopted by the Company, or that any
Purchaser
could be deemed to trigger the provisions of any such plan or arrangement,
by
virtue of receiving Securities under the Transaction Documents or under
any
other agreement between the Company and the Purchasers.
4.8 Non-Public
Information.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company covenants and
agrees that
neither it nor any other Person acting on its behalf will provide any
Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Purchaser
shall have executed a written agreement regarding the confidentiality
and use of
such information. The Company understands and confirms that each Purchaser
shall
be relying on the foregoing representations in effecting transactions
in
securities of the Company.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of
any
portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or against
any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to or
with any
other stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations
of the
Company under this paragraph shall be in addition to any liability which
the
Company may otherwise have, shall extend upon the same terms and conditions
to
any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees
and
controlling persons (if any), as the case may be, of the Purchasers and
any such
Affiliate, and shall be binding upon and inure to the benefit of any
successors,
assigns, heirs and personal representatives of the Company, the Purchasers
and
any such
Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees
or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a
result of
acquiring the Securities under this Agreement.
4.11 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.11, the Company will indemnify and
hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent
role
of a Person holding such titles notwithstanding a lack of such title
or any
other title), each Person who controls such Purchaser (within the meaning
of
Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the
directors, officers, shareholders, agents, members, partners or employees
(and
any other Persons with a functionally equivalent role of a Person holding
such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments,
amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a
result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the
other
Transaction Documents or (b) any action instituted against a Purchaser,
or any
of them or their respective Affiliates, by any stockholder of the Company
who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based
upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such stockholder or any violations by the Purchaser of
state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action
shall
be brought against any Purchaser Party in respect of which indemnity
may be
sought pursuant to this Agreement, such Purchaser Party shall promptly
notify
the Company in writing, and the Company shall have the right to assume
the
defense thereof with counsel of its own choosing reasonably acceptable
to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but
the fees
and expenses of such counsel shall be at the expense of such Purchaser
Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after
a
reasonable period of time to assume such defense and to employ counsel
or (iii)
in such action there is, in the reasonable opinion of such separate counsel,
a
material conflict on any material issue between the position of the Company
and
the position of such Purchaser Party, in which case the Company shall
be
responsible for the reasonable fees and expenses of no more than one
such
separate counsel. The Company will not be liable to any Purchaser Party
under
this Agreement (i) for any settlement by a Purchaser Party effected without
the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s breach of any of
the representations, warranties, covenants or agreements made by such
Purchaser
Party in this Agreement or in the other Transaction Documents.
4.12 Reservation
and Listing of Securities.
(a) The
Company
shall maintain a reserve from its duly authorized shares of Common Stock
for
issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date,
then the
Board of Directors of the Company shall use commercially reasonable efforts
to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the
Required Minimum at such time, as soon as possible and in any event not
later
than the 75th day after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by
the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of
Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to
be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the
listing of such Common Stock on any date at least equal to the Required
Minimum
on such date on such Trading Market or another Trading Market.
4.13 Participation
in Future Financing.
(a) From
the date
hereof until the date that is the later of (i) the date that the Debentures
are
no longer outstanding and (ii) the one year anniversary of the Effective
Date,
upon any issuance by the Company or any of its Subsidiaries of Common
Stock or
Common Stock Equivalents (a “Subsequent
Financing”),
each
Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
Maximum”)
on the
same terms, conditions and price provided for in the Subsequent
Financing.
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the
Company
shall deliver to each Purchaser a written notice of its intention to
effect a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details
of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser,
for a
Subsequent Financing Notice, the Company shall promptly, but no later
than 1
Trading Day after such request, deliver a Subsequent Financing Notice
to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail
the proposed terms of such Subsequent Financing, the amount of proceeds
intended
to be raised thereunder, the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected, and attached to which
shall be
a term sheet or similar document relating thereto.
(c) Any
Purchaser
desiring to participate in such Subsequent Financing must provide written
notice
to the Company by not later than 5:30 p.m. (New York City time) on the
5th
Trading
Day after all of the Purchasers have received the Pre-Notice that the
Purchaser
is willing to participate in the Subsequent Financing, the amount of
the
Purchaser’s
participation, and that the Purchaser has such funds ready, willing,
and
available for investment on the terms set forth in the Subsequent Financing
Notice. If the
Company
receives no notice from a Purchaser as of such 5th
Trading
Day, such Purchaser shall be deemed to have notified the Company that
it does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent
Financing
(or to cause their designees to participate) is, in the aggregate, less
than the
total amount of the Subsequent Financing, then the Company may effect
the
remaining portion of such Subsequent Financing on the terms and with
the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum,
each such
Purchaser shall have the right to purchase the greater of (a) their Pro
Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is
the
ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date
by a Purchaser participating under this Section 4.13 and (y) the sum
of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by
all Purchasers participating under this Section 4.13.
(f) The
Company must provide the Purchasers with a second Subsequent Financing
Notice,
and the Purchasers will again have the right of participation set forth
above in
this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent
Financing Notice is not consummated for any reason on the terms set forth
in
such Subsequent Financing Notice within 60 Trading Days after the date
of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of (i) an
Exempt
Issuance or (ii) an underwritten public offering of Common Stock.
4.14 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company
nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided,
however,
the 90
day period set forth in this Section 4.14 shall be extended for the number
of
Trading Days during such period in which (i) trading in the Common Stock
is
suspended by any Trading Market, or (ii) following the Effective Date,
the
Registration Statement is not effective or the prospectus included in
the
Registration Statement may not be used by the Purchasers for the resale
of the
Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Debentures,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a “Variable Rate Transaction”. The
term “Variable
Rate Transaction”
shall
mean a transaction in which the Company
issues
or
sells (i) any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares
of Common
Stock 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
debt or
equity 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
debt or equity security 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 or (ii) enters into any agreement, including, but not
limited
to, an equity line of credit, whereby the Company may sell securities
at a
future determined price.
(c) From
the
date hereof until such time as no Purchaser holds any of the Securities,
in the
event the Company issues or sells any shares of Common Stock or Common
Stock
Equivalents, if a Purchaser reasonably believes that any of the terms
and
conditions thereunder are more favorable to such investors as the terms
and
conditions granted hereunder, upon notice to the Company by such Purchaser
the
Company shall amend the terms of this transaction as to such Purchaser
only so
as to give such Purchaser the benefit of such more favorable terms or
conditions.
(d) Notwithstanding
the
foregoing, this Section 4.14 shall not apply in respect of (i) an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance
or (ii) an issuance of Common Stock occurring after the Effective Date
but prior
to the 90th
calendar
day following the Effective Date, provided that the VWAP for each of
the 20
Trading Days immediately prior to any such issuance is in excess of $0.40,
subject to adjustment for reverse and forward stock splits and the
like.
4.15 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any Person to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to
the
Transaction Documents. Further, the Company shall not make any payment
of
principal or other amounts on the Debentures in amounts which are
disproportionate to the respective principal amounts outstanding on the
Debentures at any applicable time. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company
and
negotiated separately by each Purchaser, and is intended for the Company
to
treat the Purchasers as a class and shall not in any way be construed
as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.16 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser severally and not jointly with the other Purchasers covenants
that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period
commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this
Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants
that
until such time as the transactions contemplated by this Agreement are
publicly
disclosed by the Company as described in Section 4.6, such Purchaser
will
maintain the confidentiality of all disclosures made
to
it in connection with this transaction (including the existence and terms
of
this transaction). Each Purchaser understands and acknowledges, severally
and
not jointly with any other Purchaser, that the Commission currently takes
the
position that coverage of short sales of shares of the Common Stock “against the
box” prior to the Effective Date of the Registration Statement with the
Securities is a violation of Section 5 of the Securities Act, as set
forth in
Item 65, Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser
makes any representation, warranty or covenant hereby that it will not
engage in
Short Sales in
the
securities of the Company after the time that the transactions contemplated
by
this Agreement are first publicly announced as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage
separate portions of such Purchaser's assets and the portfolio managers
have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set
forth above
shall only apply with respect to the portion of assets managed by the
portfolio
manager that made the investment decision to purchase the Securities
covered by
this Agreement.
4.17 Form
D; Blue Sky Filings.
The
Company agrees to timely file a Form D with respect to the Securities
as
required under Regulation D and to provide a copy thereof, promptly upon
request
of any Purchaser. The Company shall 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 Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.
4.18 Capital
Changes.
Until
the one year anniversary of the Effective Date, the Company shall not
undertake
a reverse or forward stock split or reclassification of the Common Stock
without
the prior written consent of the Purchasers holding a majority in principal
amount outstanding of the Debentures.
4.19 Certain
Subsidiaries.
Within
60 calendar days following the date hereof, the Company shall take all
action
reasonably necessary to dissolve and wind up the operations of the following
Subsidiaries: OXIS Health Products, Inc., a Delaware corporation, OXIS
International S.A., a French company, OXIS Acquisition Corporation, a
Delaware
corporation and OXIS Instruments, Inc., a Pennsylvania (each, a “Dormant
Subsidiary”),
each
of which is dormant and does not own any assets that are material to
the value
or operation of the Company. In the event that any Dormant Subsidiary
commences
or intends to commence operations of any nature (other than taking any
action
necessary in connection with the winding up of its affairs), the Company
shall
immediately cause such Dormant Subsidiary to execute and deliver each
Purchaser
the Subsidiary Guarantee (in addition to complying with the requirements
of the
Security Agreement). In addition, the Company shall cause each of its
Subsidiaries formed or acquired on
or
subsequent to the date hereof, in addition to complying with the requirements
under the Security Agreement, to execute and deliver each Purchaser the
Subsidiary Guarantee.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the
other
parties, if the Closing has not been consummated on or before October
27, 2006;
provided,
however,
that
such termination will not affect the right of any party to sue for any
breach by
the other party (or parties).
5.2 Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse Bristol Investment Fund,
Ltd.
(“Bristol”)
the
non-accountable sum of $20,000, for its actual, reasonable, out-of-pocket
legal
fees and expenses, $5,000 of which shall have been paid prior to the
Closing.
Except as expressly set forth in the Transaction Documents to the contrary,
each
party shall pay the fees and expenses of its advisers, counsel, accountants
and
other experts, if any, and all other expenses incurred by such party
incident to
the negotiation, preparation, execution, delivery and performance of
this
Agreement. The Company shall pay all transfer agent fees, stamp taxes
and other
taxes and duties levied in connection with the delivery of any Securities
to the
Purchasers.
5.3 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto,
contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or
written,
with respect to such matters, which the parties acknowledge have been
merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be in writing and shall be deemed given and
effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set
forth on
the signature pages attached hereto on a day that is not a Trading Day
or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to
whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived, modified, supplemented or
amended
except in a written instrument signed, in the case of an amendment, by
the
Company and each Purchaser or, in the case of a waiver, by the party
against
whom enforcement of any such waived provision is sought. No waiver of
any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver
of any
other provision, condition or requirement hereof, nor shall any delay
or
omission of any party to exercise any right hereunder in any manner impair
the
exercise of any such right.
5.6 Headings.
The
headings herein are for convenience only, do not constitute a part of
this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties
and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser (other than by merger). Any Purchaser may assign
any
or all of its rights under this Agreement to any Person to whom such
Purchaser
assigns or transfers any Securities, provided such transferee agrees
in writing
to be bound, with respect to the transferred Securities, by the provisions
of
the Transaction Documents that apply to the “Purchasers”.
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their
respective
successors and permitted assigns and is not for the benefit of, nor may
any
provision hereof be enforced by, any other Person, except as otherwise
set forth
in Section 4.11.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all
legal
proceedings concerning the interpretations, enforcement and defense of
the
transactions contemplated by this Agreement and any other Transaction
Documents
(whether brought against a party hereto or its respective affiliates,
directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party
hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with
any
transaction contemplated hereby or discussed herein (including with respect
to
the enforcement of any of the Transaction Documents), 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 improper or is an inconvenient venue
for such
proceeding. 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 via registered or certified mail or overnight
delivery
(with evidence of delivery) to such party at the address in effect for
notices
to it under this Agreement and agrees that such service shall constitute
good
and sufficient service of process and notice thereof. Nothing contained
herein
shall be deemed to limit in any way any right to serve process in any
other
manner permitted by law. The parties hereby waive all rights to a trial
by jury.
If either party shall commence an action or proceeding to enforce any
provisions
of the Transaction Documents, then the prevailing party in such action
or
proceeding shall be reimbursed by the other party for its reasonable
attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.10 Survival.
The
representations and warranties shall survive the Closing and the delivery
of the
Securities for the applicable statue of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which when
taken
together 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, it being understood that both parties need not sign the
same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
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
facsimile or “.pdf” signature page were an original thereof.
5.12 Severability.
If any
term, provision, covenant or restriction of this Agreement is held by
a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set forth
herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of such
that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) any of the other Transaction Documents, whenever
any
Purchaser 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 Purchaser 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; provided,
however,
in the
case of a rescission of a conversion of a Debenture or exercise of a
Warrant,
the Purchaser shall be required to return any shares of Common Stock
delivered
in connection with any such rescinded conversion or exercise
notice.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost,
stolen
or destroyed, the Company shall issue or cause to be issued in exchange
and
substitution for and upon cancellation thereof (in the case of mutilation),
or
in lieu of and substitution therefor, a new certificate or instrument,
but only
upon receipt of evidence reasonably satisfactory to the Company of such
loss,
theft or destruction. The applicant for a new certificate or instrument
under
such circumstances shall also pay any reasonable third-party costs (including
customary indemnity) associated with the issuance of such replacement
Securities.
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or
granted by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents.
The parties
agree that monetary damages may not be adequate compensation for any
loss
incurred by reason of any breach
of
obligations contained in the Transaction Documents and hereby agrees
to waive
and not to assert in any action for specific performance of any such
obligation
the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser
pursuant to
any Transaction Document or a Purchaser enforces or exercises its rights
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, state or federal law, common law or equitable cause of
action),
then to the extent of any such restoration the 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.
5.17 Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist
upon or
plead or in any manner whatsoever claim, and will resist any and all
efforts to
be compelled to take the benefit or advantage of, usury laws wherever
enacted,
now or at any time hereafter in force, in connection with any claim,
action or
proceeding that may be brought by any Purchaser in order to enforce any
right or
remedy under any Transaction Document. Notwithstanding any provision
to the
contrary contained in any Transaction Document, it is expressly agreed
and
provided that the total liability of the Company under the Transaction
Documents
for payments in the nature of interest shall not exceed the maximum lawful
rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other sums
in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of
interest
allowed by law will be the Maximum Rate applicable to the Transaction
Documents
from the effective date forward, unless such application is precluded
by
applicable law. If under any circumstances whatsoever, interest in excess
of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall
be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such
excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several
and not
joint with the obligations of any other Purchaser, and no Purchaser shall
be
responsible in any way for the performance or non-performance of the
obligations
of any other Purchaser under any Transaction Document. Nothing contained
herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create
a
presumption that the Purchasers are in any way acting in concert or as
a group
with respect to such obligations or the transactions contemplated by
the
Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights
arising
out of this Agreement or out of the other Transaction Documents, and
it shall
not be necessary for any other Purchaser to be joined as an additional
party in
any proceeding for such purpose. Each Purchaser has been represented
by its own
separate legal counsel in their review and negotiation
of
the
Transaction Documents. For reasons of administrative convenience only,
Purchasers and their respective counsel have chosen to communicate with
the
Company through FWS. FWS does not represent all of the Purchasers but
only
Bristol. The Company has elected to provide all Purchasers with the same
terms
and Transaction Documents for the convenience of the Company and not
because it
was required or requested to do so by the Purchasers.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the
Company
and shall not terminate until all unpaid partial liquidated damages and
other
amounts have been paid notwithstanding the fact that the instrument or
security
pursuant to which such partial liquidated damages or other amounts are
due and
payable shall have been canceled.
5.20 Construction.
The
parties agree that each of them and/or their respective counsel has reviewed
and
had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to
be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
OXIS
INTERNATIONAL, INC. |
Address
for Notice:
|
By:__________________________________________
Name:
Title:
|
OXIS
International, Inc.
323
Vintage Park Drive,
Suite
B
Foster
City, California 94404
T: 650-212-2568
F: 650-212-2569
Attn:
Marvin Hausman
|
With
a copy to (which shall not constitute notice):
|
Kevin
Leung, Esq.
Richardson
& Patel LLP
10900
Wilshire Boulevard
Suite
500
Los
Angeles, CA 90024
F:
(310) 208-1154
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO OXIS SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement
to be duly executed by their respective authorized signatories as of
the date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser:
__________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of Purchaser:
________________________________________________
Facsimile
Number of Purchaser:
________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as above):
Subscription
Amount: _____________
Principal
Amount: (Subscription Amount multiplied by 1.255):
Series
A
Warrant Shares:
Series
B
Warrant Shares:
Series
C
Warrant Shares:
Series
D
Warrant Shares:
Series
E
Warrant Shares:
Purchasers
that would like a 9.99% initial Beneficial Ownership Limitation in their
Debentures and Warrants instead of a 4.99% limitation, please so indicate
by
checking here:
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
39
Exhibit
10.2
EXHIBIT
A
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE
PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH
SECURITIES.
Original
Issue Date: October
25, 2006
Original
Conversion Price (subject to adjustment herein): $0.35
$_______________
SECURED
CONVERTIBLE DEBENTURE
DUE
October 25, 2008
THIS
SECURED DEBENTURE is one of a series of duly authorized and validly
issued
Secured Convertible Debentures of Oxis International, Inc., a Delaware
corporation, having its principal place of business at 323
Vintage Park Drive, Suite B, Foster City, California 94404
(the
“Company”),
designated as its Secured Convertible Debenture due October 25, 2008
(this
debenture, the “Debenture”
and,
collectively with the other such series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to ________________________ or
its
registered assigns (the “Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum
of
$_______________ by October 25, 2008 (the “Maturity
Date”)
or
such earlier date as this Debenture is required or permitted to be
repaid as
provided hereunder. This Debenture is subject to the following additional
provisions:
Section
1. Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this
Debenture,
(a) capitalized terms not otherwise defined herein shall have the meanings
set
forth in the Purchase Agreement and (b) the following terms shall have
the
following meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(e).
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences
a case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is
not dismissed
within 60 days after commencement; (c) the Company or any Significant
Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief
or other
order approving any such case or proceeding is entered; (d) the Company
or any
Significant Subsidiary thereof suffers any appointment of any custodian
or the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment; (e) the Company
or any
Significant Subsidiary thereof makes a general assignment for the benefit
of
creditors; (f) the Company or any Significant Subsidiary thereof calls
a meeting
of its creditors with a view to arranging a composition, adjustment
or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent
to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Business
Day”
means
any day except Saturday, Sunday, any day which shall be a federal legal
holiday
in the United States or any day on which banking institutions in the
State of
New York are authorized or required by law or other governmental action
to
close.
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after
the date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether
through legal or beneficial ownership of capital stock of the Company,
by
contract or otherwise) of in excess of 33% of the voting securities
of the
Company (other than by means of conversion or exercise of the Debentures
and the
Securities issued together with the Debentures), or (ii) the Company
merges into
or consolidates with any other Person, or any Person merges into or
consolidates
with the Company and, after giving effect to such transaction, the
stockholders
of the Company immediately prior to such transaction own less than
66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or substantially
all of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting
power of the
acquiring entity immediately after the transaction, or (iv) a replacement
at one
time or within a three year period of more than one-half of the members
of the
Company’s board of directors which is not approved by a majority of
those
individuals who are members of the board of directors on the date hereof
(or by
those individuals who are serving as members of the board of directors
on any
date whose nomination to the board of directors was approved by a majority
of
the members of the board of directors who are members on the date hereof),
or
(v) the execution by the Company of an agreement to which the Company
is a party
or by which it is bound, providing for any of the events set forth
in clauses
(i) through (iv) above.
“Common
Stock”
means
the common stock, par value $.001 per share, of the Company and stock
of any
other class of securities into which such securities may hereafter
be
reclassified or changed into.
“Conversion
Date”
shall
have the meaning set forth in Section 4(a).
“Conversion
Price”
shall
have the meaning set forth in Section 4(b).
“Conversion
Shares”
means,
collectively, the shares of Common Stock issuable upon conversion of
this
Debenture in accordance with the terms hereof.
“Debenture
Register”
shall
have the meaning set forth in Section 2(c).
“Dilutive
Issuance”
shall
have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 5(b).
“Effectiveness
Period”
shall
have the meaning set forth in the Registration Rights Agreement.
“Equity
Conditions”
shall
mean, during the period in question, (i)
the
Company shall have duly honored all conversions and redemptions scheduled
to
occur or occurring by virtue of one or more Notices of Conversion of
the Holder,
if any, (ii) the Company shall have paid all liquidated damages and
other
amounts owing to the Holder in respect of this Debenture, (iii)
there is an effective Registration Statement pursuant to which the
Holder is
permitted to utilize the prospectus thereunder to resell all of the
shares
issuable pursuant to the Transaction Documents (and the Company believes,
in
good faith, that such effectiveness will continue uninterrupted for
the
foreseeable future), (iv) the Common Stock is trading on a Trading
Market and
all of the shares issuable pursuant to the Transaction Documents are
listed for
trading on such Trading Market (and the Company believes, in good faith,
that
trading of the Common Stock on a Trading Market will continue uninterrupted
for
the foreseeable future), (v) there is a sufficient number of authorized
but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all
of the shares issuable pursuant to the Transaction Documents, (vi)
there is no
existing Event of Default or no existing event which, with the passage
of time
or the giving of notice, would constitute an Event of Default, (vii)
the
issuance of the shares in question (or, in the case of a Monthly Redemption,
the
shares issuable upon conversion in full of the Monthly Redemption
Amount) to
the
Holder would not violate the limitations set forth in Section 4(c)
herein,
(viii)
there has been no public announcement of a pending
or
proposed Fundamental Transaction or Change of Control Transaction that
has not
been consummated, (ix) the Holder is not in possession of any information
provided by the Company that constitutes, or may constitute, material
non-public
information and (x) for a period of 20 consecutive Trading Days prior
to any
applicable date in question beginning after the 6 month anniversary
of the date
of the Purchase Agreement, the daily trading volume for the Common
Stock on the
principal Trading Market exceeds 50,000 shares per Trading Day (subject
to
adjustment for forward and reverse stock splits and the like).
“Event
of Default”
shall
have the meaning set forth in Section 8.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations
promulgated thereunder.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(e).
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) 130% of the outstanding principal
amount of
this Debenture or (B) the outstanding principal amount of this Debenture,
divided by the Conversion Price on the date the Mandatory Default Amount
is
either (a) demanded (if demand or notice is required to create an Event
of
Default) or otherwise due or (b) paid in full, whichever has a lower
Conversion
Price, multiplied by the VWAP on the date the Mandatory Default Amount
is either
(x) demanded or otherwise due or (y) paid in full, whichever has a
higher VWAP,
and (ii) all other amounts, costs, expenses and liquidated damages
due in
respect of this Debenture.
“Monthly
Conversion Period”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Conversion Price”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption”
means
the redemption of this Debenture pursuant to Section 6(a) hereof.
“Monthly
Redemption Amount”
means,
as to a Monthly Redemption, $[_____,
plus
accrued but unpaid liquidated damages and any other amounts then owing
to such
Holder in respect of this Debenture.
“Monthly
Redemption Date”
means
the 1st of each month, commencing immediately upon the earlier of (a)
the first
such date immediately following the Effective Date and (b) February
1, 2007, and
terminating upon the full redemption of this Debenture.
1 1/20th
of the original principal amount
“Monthly
Redemption Notice”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Share Amount”
shall
have the meaning set forth in Section 6(a) hereof.
“New
York Courts”
shall
have the meaning set forth in Section 9(d).
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Optional
Redemption”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Amount”
means
the sum of (i) 100% of the principal amount of the Debenture then outstanding,
(ii) accrued but unpaid interest and (iii) all liquidated damages and
other
amounts due in respect of the Debenture.
“Optional
Redemption Date”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(b).
“Original
Issue Date”
means
the date of the first issuance of the Debentures, regardless of any
transfers of
any Debenture and regardless of the number of instruments which may
be issued to
evidence such Debentures.
“Permitted
Indebtedness”
means (a) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(aa)
attached
to the Purchase Agreement, (b) lease obligations and purchase money
indebtedness
of up to $250,000, in the aggregate, incurred in connection with the
acquisition
of capital assets and lease obligations with respect to newly acquired
or leased
assets.
“Permitted
Lien”
means
the individual and collective reference to the following: (a) Liens
for taxes,
assessments and other governmental charges or levies not yet due or
Liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves
(in the
good faith judgment of the management of the Company) have been established
in
accordance with GAAP; (b) Liens imposed by law which were incurred
in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property
or assets
or materially impair the use thereof in the operation of the business
of the
Company and its consolidated Subsidiaries or (y) are being contested
in good
faith by appropriate proceedings, which proceedings have the effect
of
preventing for the foreseeable future the forfeiture or sale of the
property or
asset subject to such Lien; and (c) Liens incurred in connection with
Permitted
Indebtedness under
clause
(b) thereunder, provided that such Liens are not secured by assets
of the
Company or its Subsidiaries other than the assets so acquired or
leased.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company,
government (or an agency or subdivision thereof) or other entity of
any
kind.
“Pre-Redemption
Conversion Shares”
shall
have the meaning set forth in Section 6(a) hereof.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of October 25, 2006 among
the
Company and the original Holders, as amended, modified or supplemented
from time
to time in accordance with its terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, among the Company and the original Holders, as amended,
modified or
supplemented from time to time in accordance with its terms.
“Registration
Statement”
means
a
registration statement that registers the resale of all Conversion
Shares of the
Holder, names such Holder as a “selling stockholder” therein, and meets the
requirements of the Registration Rights Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning set forth in Section 4(d).
“Subsidiary”
shall
have the meaning set forth in the Purchase Agreement.
“Trading
Day”
means
a
day on which the principal Trading Market is open for business.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the American Stock Exchange, the
Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading
Market,
the daily volume weighted average price of the Common Stock for such
date (or
the nearest preceding date) on the Trading Market on which the Common
Stock is
then listed or quoted for trading as reported by Bloomberg L.P. (based
on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York
City
time); (b) if the OTC
Bulletin
Board is not a Trading Market, the volume weighted average price of
the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board;
(c) if the Common Stock is not then quoted for trading on the OTC Bulletin
Board
and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to
its functions of reporting prices), the most recent bid price per share
of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in
good faith by the Holder and reasonably acceptable to the Company.
Section
2. Interest
and Prepayment.
No
regularly scheduled interest payments shall be made on this Debenture.
Except as
otherwise set forth in this Debenture, the Company may not prepay any
portion of
the principal amount of this Debenture without the prior written consent
of the
Holder.
Section
3. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of
Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be payable for such registration of
transfer or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations
of the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable
federal
and state securities laws and regulations.
c) Reliance
on Debenture Register.
Prior
to due presentment for transfer to the Company of this Debenture, the
Company
and any agent of the Company may treat the Person in whose name this
Debenture
is duly registered on the Debenture Register as the owner hereof for
the purpose
of receiving payment as herein provided and for all other purposes,
whether or
not this Debenture is overdue, and neither the Company nor any such
agent shall
be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary
Conversion.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in whole or in part,
into
shares of Common Stock at the option of the Holder, at any time and
from time to
time (subject to the conversion limitations set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company
a
Notice of Conversion, the form of which is attached hereto as Annex
A
(a
“Notice
of Conversion”),
specifying therein the principal amount of this Debenture to be converted
and
the date on which such conversion shall be effected (such date, the
“Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion
Date
shall be the date that such Notice of Conversion is deemed delivered
hereunder.
To effect conversions
hereunder,
the Holder shall not be required to physically surrender this Debenture
to the
Company unless the entire principal amount of this Debenture. Conversions
hereunder shall have the effect of lowering the outstanding principal
amount of
this Debenture in an amount equal to the applicable conversion. The
Holder and
the Company shall maintain records showing the principal amount(s)
converted and
the date of such conversion(s). The Company may deliver an objection
to any
Notice of Conversion within 1 Business Day of delivery of such Notice
of
Conversion. In the event of any dispute or discrepancy, the records
of the
Holder shall be controlling and determinative in the absence of manifest
error.
The
Holder, and any assignee by acceptance of this Debenture, acknowledge
and agree
that, by reason of the provisions of this paragraph, following conversion
of a
portion of this Debenture, the unpaid and unconverted principal amount
of this
Debenture may be less than the amount stated on the face
hereof.
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to
$0.35
(subject
to adjustment herein) (the “Conversion
Price”).
c) Holder’s
Restriction on Conversion.
[FOR
HOLDERS THAT ELECT A 9.99% BENEFICIAL OWNERSHIP LIMITATION] [The Company
shall
not effect any conversion of this Debenture, and a Holder shall not
have the
right to convert any portion of this Debenture, to the extent that
after giving
effect to the conversion set forth on the applicable Notice of Conversion,
such
Holder (together with such Holder’s Affiliates, and any other person or entity
acting as a group together with such Holder or any of such Holder’s Affiliates)
would beneficially own in excess of the Beneficial Ownership Limitation
(as
defined below). For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by such Holder and its Affiliates
shall include the number of shares of Common Stock issuable upon conversion
of
this Debenture with respect to which such determination is being made,
but shall
exclude the number of shares of Common Stock which are issuable upon
(A)
conversion of the remaining, unconverted principal amount of this Debenture
beneficially owned by such Holder or any of its Affiliates and (B)
exercise or
conversion of the unexercised or unconverted portion of any other securities
of
the Company subject to a limitation on conversion or exercise analogous
to the
limitation contained herein (including, without limitation, any other
Debentures
or the Warrants) beneficially owned by such Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 4(c), beneficial ownership shall be calculated in accordance
with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this Section
4(c)
applies, the determination of whether this Debenture is convertible
(in relation
to other securities owned by such Holder together with any Affiliates)
and of
which principal amount of this Debenture is convertible shall be in
the sole
discretion of such Holder, and the submission of a Notice of Conversion
shall be
deemed to be such Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder together
with
any Affiliates) and which principal amount of this Debenture is convertible,
in
each case subject to such aggregate percentage limitations. To ensure
compliance
with this restriction, each Holder will be deemed to represent to the
Company
each time it delivers
a
Notice
of Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation
to verify
or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above
shall be
determined in accordance with Section 13(d) of the Exchange Act and
the
rules and regulations promulgated thereunder. For
purposes of this Section 4(c), in determining the number of outstanding
shares
of Common Stock, a Holder may rely on the number of outstanding shares
of Common
Stock as stated in the most recent of the following: (A) the Company’s most
recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent
public
announcement by the Company; or (C) a more recent notice by the Company
or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to such
Holder the
number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving
effect to
the conversion or exercise of securities of the Company, including
this
Debenture, by such Holder or its Affiliates since the date as of which
such
number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable
upon
conversion of this Debenture held by the Holder. The provisions of
this
paragraph shall be construed and implemented in a manner otherwise
than in
strict conformity with the terms of this Section 4(c) to correct this
paragraph
(or any portion hereof) which may be defective or inconsistent with
the intended
Beneficial Ownership Limitation herein contained or to make changes
or
supplements necessary or desirable to properly give effect to such
limitation.
The
limitations contained in this paragraph shall apply to a successor
holder of
this
Debenture.]
[FOR
HOLDERS THAT ELECT A 4.99% LIMITATION][
Holder’s Restriction on Conversion.
The
Company shall not effect any conversion of this Debenture, and a Holder
shall
not have the right to convert any portion of this Debenture, to the
extent that
after giving effect to the conversion set forth on the applicable Notice
of
Conversion, such Holder (together with such Holder’s Affiliates, and any other
person or entity acting as a group together with such Holder or any
of such
Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by
such Holder
and its Affiliates shall include the number of shares of Common Stock
issuable
upon conversion of this Debenture with respect to which such determination
is
being made, but shall exclude the number of shares of Common Stock
which are
issuable upon (A) conversion of the remaining, unconverted principal
amount of
this Debenture beneficially owned by such Holder or any of its Affiliates
and
(B) exercise or conversion of the unexercised or unconverted portion
of any
other securities of the Company subject to a limitation on conversion
or
exercise analogous to the limitation contained herein (including, without
limitation, any other Debentures or the Warrants) beneficially owned
by such
Holder or any of its Affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall
be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules
and regulations promulgated thereunder. To the extent that the limitation
contained in this
Section
4(c) applies, the determination of whether this Debenture is convertible
(in
relation to other securities owned by such Holder together with any
Affiliates)
and of which principal amount of this Debenture is convertible shall
be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder’s determination of whether this Debenture may
be converted (in relation to other securities owned by such Holder
together with
any Affiliates) and which principal amount of this Debenture is convertible,
in
each case subject to such aggregate percentage limitations. To ensure
compliance
with this restriction, each Holder will be deemed to represent to the
Company
each time it delivers a Notice of Conversion that such Notice of Conversion
has
not violated the restrictions set forth in this paragraph and the Company
shall
have no obligation to verify or confirm the accuracy of such determination.
In
addition, a determination as to any group status as contemplated above
shall be
determined in accordance with Section 13(d) of the Exchange Act and
the
rules and regulations promulgated thereunder.
For
purposes of this Section 4(c), in determining the number of outstanding
shares
of Common Stock, a Holder may rely on the number of outstanding shares
of Common
Stock as stated in the most recent of the following: (A) the Company’s most
recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent
public
announcement by the Company; or (C) a more recent notice by the Company
or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to such
Holder the
number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving
effect to
the conversion or exercise of securities of the Company, including
this
Debenture, by such Holder or its Affiliates since the date as of which
such
number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable
upon
conversion of this Debenture held by the Holder. The Beneficial Ownership
Limitation provisions of this Section 4(c) may be waived by such Holder,
at the
election of such Holder, upon not less than 61 days’ prior notice to the
Company, to change the Beneficial Ownership Limitation to 9.99% of
the number of
shares of the Common Stock outstanding immediately after giving effect
to the
issuance of shares of Common Stock upon conversion of this Debenture
held by the
Holder and the provisions of this Section 4(c) shall continue to apply.
Upon
such a change by a Holder of the Beneficial Ownership Limitation from
such 4.99%
limitation to such 9.99% limitation, the Beneficial Ownership Limitation
may not
be further waived by such Holder. The provisions of this paragraph
shall be
construed and implemented in a manner otherwise than in strict conformity
with
the terms of this Section 4(c) to correct this paragraph (or any portion
hereof)
which may be defective or inconsistent with the intended Beneficial
Ownership
Limitation herein contained or to make changes or supplements necessary
or
desirable to properly give effect to such limitation.
The
limitations contained in this paragraph shall apply to a successor
holder of
this
Debenture.]
d) Mechanics
of Conversion.
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of shares of Common Stock issuable upon a conversion hereunder
shall be
determined by the quotient obtained by dividing (x) the outstanding
principal
amount of this Debenture to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver, or cause to be delivered, to the Holder a certificate
or
certificates representing the Conversion Shares which, on or after
the Effective
Date, shall be free of restrictive legends and trading restrictions
(other than
those which may then be required by the Purchase Agreement) representing
the
number of shares of Common Stock being acquired upon the conversion
of this
Debenture. On or after the Effective Date, the Company shall use its
best
efforts to deliver any certificate or certificates required to be delivered
by
the Company under this Section 4 electronically through the Depository
Trust
Company or another established clearing corporation performing similar
functions.
iii. Failure
to Deliver Certificates.
If in
the case of any Notice of Conversion such certificate or certificates
are not
delivered to or as directed by the applicable Holder by the third Trading
Day
after the Conversion Date, the Holder shall be entitled to elect by
written
notice to the Company at any time on or before its receipt of such
certificate
or certificates, to rescind such Conversion, in which event the Company
shall
promptly return to the Holder any original Debenture delivered to the
Company
and the Holder shall promptly return the Common Stock certificates
representing
the principal amount of this Debenture tendered for conversion to the
Company.
iv. Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute
and
unconditional, irrespective of any action or inaction by the Holder
to enforce
the same, any waiver or consent with respect to any provision hereof,
the
recovery of any judgment against any Person or any action to enforce
the same,
or any setoff, counterclaim, recoupment, limitation or termination,
or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder
or any
other Person, and irrespective of any other circumstance which might
otherwise
limit such obligation of the Company to the Holder in connection with
the
issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Company of any such
action
the Company may have against the Holder. In the event the Holder of
this
Debenture shall elect to convert any or all of the outstanding principal
amount
hereof, the Company may not refuse conversion based on any claim that
the Holder
or anyone associated or affiliated with the Holder has been engaged
in any
violation of law, agreement or for any other reason, unless an injunction
from a
court, on notice to Holder, restraining
and
or
enjoining conversion of all or part of this Debenture shall have been
sought and
obtained, and the Company posts a surety bond for the benefit of the
Holder in
the amount of 150% of the outstanding principal amount of this Debenture,
which
is subject to the injunction, which bond shall remain in effect until
the
completion of arbitration/litigation of the underlying dispute and
the proceeds
of which shall be payable to such Holder to the extent it obtains judgment.
In
the absence of such injunction, the Company shall issue Conversion
Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company
fails for
any reason to deliver to the Holder such certificate or certificates
pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
the Company
shall pay to such Holder, in cash, as liquidated damages and not as
a penalty,
for each $1000 of principal amount being converted, $10 per Trading
Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such
third
Trading Day until such certificates are delivered. Nothing herein shall
limit a
Holder’s right to pursue actual damages or declare an Event of Default pursuant
to Section 8 hereof for the Company’s failure to deliver Conversion Shares
within the period specified herein and such Holder shall have the right
to
pursue all remedies available to it hereunder, at law or in equity
including,
without limitation, a decree of specific performance and/or injunctive
relief.
The exercise of any such rights shall not prohibit the Holder from
seeking to
enforce damages pursuant to any other Section hereof or under applicable
law.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
In
addition to any other rights available to the Holder, if the Company
fails for
any reason to deliver to the Holder such certificate or certificates
by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such
Share
Delivery Date the Holder is required by its brokerage firm to purchase
(in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale
by such
Holder of the Conversion Shares which the Holder was entitled to receive
upon
the conversion relating to such Share Delivery Date (a “Buy-In”),
then
the Company shall (A) pay in cash to the Holder (in addition to any
other
remedies available to or elected by the Holder) the amount by which
(x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of
shares of Common Stock that such Holder was entitled to receive from
the
conversion at issue multiplied by (2) the actual sale price at which
the sell
order giving rise to such purchase obligation was executed (including
any
brokerage commissions) and (B) at the option of the Holder, either
reissue (if
surrendered) this Debenture in a principal amount equal to the principal
amount
of the attempted conversion or deliver to the Holder the number of
shares of
Common Stock that would have been issued if the Company had timely
complied with
its delivery requirements under Section 4(d)(ii). For example, if the
Holder
purchases Common Stock having a total purchase price of $11,000 to
cover a
Buy-In with respect to an
attempted
conversion of this Debenture with respect to which the actual sale
price of the
Conversion Shares (including any brokerage commissions) giving rise
to such
purchase obligation was a total of $10,000 under clause (A) of the
immediately
preceding sentence, the Company shall be required to pay the Holder
$1,000. The
Holder shall provide the Company written notice indicating the amounts
payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in
equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of
this
Debenture as required pursuant to the terms hereof.
vi. Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available
out of
its authorized and unissued shares of Common Stock for the sole purpose
of
issuance upon conversion of this Debenture and payment of principal
on this
Debenture, each as herein provided, free from preemptive rights or
any other
actual contingent purchase rights of Persons other than the Holder
(and the
other holders of the Debentures), not less than such aggregate number
of shares
of the Common Stock as shall (subject to the terms and conditions set
forth in
the Purchase Agreement) be issuable (taking into account the adjustments
and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Debenture and payment of principal hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable
shall, upon
issue, be duly authorized, validly issued, fully paid and nonassessable
and, if
the Registration Statement is then effective under the Securities Act,
shall be
registered for public sale in accordance with such Registration
Statement.
vii. Fractional
Shares.
Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but
may if
otherwise permitted, make a cash payment in respect of any final fraction
of a
share based on the VWAP at such time. If the Company elects not, or
is unable,
to make such a cash payment, the Holder shall be entitled to receive,
in lieu of
the final fraction of a share, 1 whole share of Common Stock.
viii. Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion
of this
Debenture shall be made without charge to the Holder hereof for any
documentary
stamp or similar taxes that may be payable in respect of the issue
or delivery
of such certificates, provided that the Company shall not be required
to pay any
tax that may be payable in respect of any transfer involved in the
issuance and
delivery of any such certificate upon conversion in a name other than
that of
the Holder of this Debenture so converted and the Company shall not
be required
to issue or deliver such certificates unless or until the person or
persons
requesting the issuance thereof shall have paid to the
Company
the amount of such tax or shall have established to the satisfaction
of the
Company that such tax has been paid.
Section
5.
Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Company, at any time while this Debenture is outstanding: (A) pays
a stock
dividend or otherwise makes a distribution or distributions payable
in shares of
Common Stock on shares of Common Stock or any Common Stock Equivalents
(which,
for avoidance of doubt, shall not include any shares of Common Stock
issued by
the Company upon conversion of this Debenture); (B) subdivides outstanding
shares of Common Stock into a larger number of shares; (C) combines
(including
by way of a reverse stock split) outstanding shares of Common Stock
into a
smaller number of shares; or (D) issues, in the event of a reclassification
of
shares of the Common Stock, any shares of capital stock of the Company,
then the
Conversion Price shall be multiplied by a fraction of which the numerator
shall
be the number of shares of Common Stock (excluding any treasury shares
of the
Company) 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 this Section shall become effective
immediately after the record date for the determination of stockholders
entitled
to receive such dividend or distribution and shall become effective
immediately
after the effective date in the case of a subdivision, combination
or
re-classification.
b) Subsequent
Equity Sales.
If, at
any time while this Debenture is outstanding, the Company or any Subsidiary,
as
applicable, sells or grants any option to purchase or sells or grants
any right
to reprice, or otherwise disposes of or issues (or announces any sale,
grant or
any option to purchase or other disposition), any Common Stock or Common
Stock
Equivalents entitling any Person to acquire shares of Common Stock
at an
effective price per share that is lower than the then Conversion Price
(such
lower price, the “Base
Conversion Price”
and
such issuances, collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued
shall at
any time, whether by operation of purchase price adjustments, reset
provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to
warrants, options or rights per share which are issued in connection
with such
issuance, be entitled to receive shares of Common Stock at an effective
price
per share that is lower than the Conversion Price, such issuance shall
be deemed
to have occurred for less than the Conversion Price on such date of
the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the
Base
Conversion Price. Such adjustment shall be made whenever such Common
Stock or
Common Stock Equivalents are issued. Notwithstanding
the foregoing, no adjustment will be made under this Section 5(b) in
respect of
an Exempt Issuance.
The
Company shall notify the Holder in writing, no later than 1 Business
Day
following the issuance of any Common Stock or Common Stock Equivalents
subject
to this Section 5(b), indicating therein the applicable issuance price,
or
applicable reset price, exchange price, conversion price and other
pricing terms
(such notice, the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company
provides
a Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of
any Dilutive Issuance, the Holder is entitled to receive a number of
Conversion
Shares based upon the Base Conversion Price on or after the date of
such
Dilutive Issuance, regardless of whether the Holder accurately refers
to the
Base Conversion Price in the Notice of Conversion.
c) Subsequent
Rights Offerings.
If the
Company, at any time while the Debenture is outstanding, shall issue
rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock
at a price
per share that is lower than the VWAP on the record date referenced
below, then
the Conversion Price shall be multiplied by a fraction of which the
denominator
shall be the number of shares of the Common Stock outstanding on the
date of
issuance of such rights or warrants plus the number of additional shares
of
Common Stock offered for subscription or purchase, and of which the
numerator
shall be the number of shares of the Common Stock outstanding on the
date of
issuance of such rights or warrants plus the number of shares which
the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise
of
such rights, options or warrants) would purchase at such VWAP. Such
adjustment
shall be made whenever such rights or warrants are issued, and shall
become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
d) Pro
Rata Distributions.
If the
Company, at any time while this Debenture is outstanding, distributes
to all
holders of Common Stock (and not to the Holders) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants
to subscribe
for or purchase any security (other than the Common Stock, which shall
be
subject to Section 5(b)), then in each such case the Conversion Price
shall be
adjusted by multiplying such Conversion Price in effect immediately
prior to the
record date fixed for determination of stockholders entitled to receive
such
distribution by a fraction of which the denominator shall be the VWAP
determined
as of the record date mentioned above, and of which the numerator shall
be such
VWAP on such record date less the then fair market value at such record
date of
the portion of such assets or evidence of indebtedness so distributed
applicable
to 1 outstanding share of the Common Stock as determined by the Board
of
Directors of the Company in good faith. In either case the adjustments
shall be
described in a statement delivered to the Holder describing the portion
of
assets or evidences of indebtedness so distributed or such subscription
rights
applicable to 1 share of Common Stock. Such adjustment shall be made
whenever
any such distribution is made and shall become effective immediately
after the
record date mentioned above.
e) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects
any merger
or consolidation of the Company with or into another Person, (B) the
Company
effects any sale of all or substantially all of its assets in one transaction
or
a series of related transactions, (C) any tender offer or exchange
offer
(whether by the Company or another Person) is completed pursuant to
which
holders of Common Stock are permitted to tender or exchange their shares
for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant
to which the Common Stock is effectively converted into or exchanged
for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent conversion of this Debenture, the Holder shall
have the
right to receive, for each Conversion Share that would have been issuable
upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property
as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of 1 share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion
Price shall
be appropriately adjusted to apply to such Alternate Consideration
based on the
amount of Alternate Consideration issuable in respect of 1 share of
Common Stock
in such Fundamental Transaction, and the Company shall apportion the
Conversion
Price among the Alternate Consideration in a reasonable manner reflecting
the
relative value of any different components of the Alternate Consideration.
If
holders of Common Stock are given any choice as to the securities,
cash or
property to be received in a Fundamental Transaction, then the Holder
shall be
given the same choice as to the Alternate Consideration it receives
upon any
conversion of this Debenture following such Fundamental Transaction.
To the
extent necessary to effectuate the foregoing provisions, any successor
to the
Company or surviving entity in such Fundamental Transaction shall issue
to the
Holder a new debenture consistent with the foregoing provisions and
evidencing
the Holder’s right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction
is effected
shall include terms requiring any such successor or surviving entity
to comply
with the provisions of this Section 5(e) and insuring that this Debenture
(or
any such replacement security) will be similarly adjusted upon any
subsequent
transaction analogous to a Fundamental Transaction.
f) Calculations.
All
calculations under this Section 5 shall be made to the nearest cent
or the
nearest 1/100th of a share, as the case may be. For purposes of this
Section 5,
the number of shares of Common Stock deemed to be issued and outstanding
as of a
given date shall be the sum of the number of shares of Common Stock
(excluding
any treasury shares of the Company) issued and outstanding.
g) Notice
to the Holder.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provision
of this
Section 5, the Company shall promptly mail to each Holder a notice
setting forth
the Conversion Price after such adjustment and setting forth a brief
statement
of the facts requiring such adjustment. If the Company issues a variable
rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company
shall be deemed to have issued Common Stock or Common Stock Equivalents
at the
lowest possible conversion
or
exercise price at which such securities may be converted or exercised
in the
case of a Variable Rate Transaction (as defined in the Purchase
Agreement).
ii. Notice
to Allow Conversion by Holder.
If (A)
the Company shall declare a dividend (or any other distribution in
whatever
form) on the Common Stock, (B) the Company shall declare a special
nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company
shall
authorize the granting to all holders of the Common Stock of rights
or warrants
to subscribe for or purchase any shares of capital stock of any class
or of any
rights, (D) the approval of any stockholders of the Company shall be
required in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all
or
substantially all of the assets of the Company, of any compulsory share
exchange
whereby the Common Stock is converted into other securities, cash or
property or
(E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company, then, in each case, the Company
shall
cause to be filed at each office or agency maintained for the purpose
of
conversion of this Debenture, and shall cause to be delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least 20 calendar days prior to the applicable record
or effective
date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken,
the date as of which the holders of the Common Stock of record to be
entitled to
such dividend, distributions, redemption, rights or warrants are to
be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or
close, and the date as of which it is expected that holders of the
Common Stock
of record shall be entitled to exchange their shares of the Common
Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that
the
failure to deliver such notice or any defect therein or in the delivery
thereof
shall not affect the validity of the corporate action required to be
specified
in such notice. The Holder is entitled to convert this Debenture during
the
20-day period commencing on the date of such notice through the effective
date
of the event triggering such notice.
Section
6. Redemption.
a) Monthly
Redemption.
On each
Monthly Redemption Date, the Company shall redeem the Monthly Redemption
Amount
(the “Monthly
Redemption”).
The
Monthly Redemption Amount payable on each Monthly Redemption Date shall
be paid
in cash; provided,
however,
as to
any Monthly Redemption and upon 20 Trading Days’ prior written irrevocable
notice (the “Monthly
Redemption Notice”),
in
lieu of a cash redemption payment the Company may elect to pay all
or part of a
Monthly Redemption Amount in Conversion Shares (such dollar amount
to be paid on
a Monthly Redemption Date in Conversion Shares, the “Monthly
Redemption Share Amount”)
based
on a
conversion
price equal to the lesser of (i) the then Conversion Price and (ii)
85% of the
average of the VWAPs for the 10 consecutive Trading Days ending on
the Trading
Day that is immediately prior to the applicable Monthly Redemption
Date (subject
to adjustment for any stock dividend, stock split, stock combination
or other
similar event affecting the Common Stock during such 10 Trading Day
period) (the
price calculated during the 10 Trading Day period immediately prior
to the
Monthly Redemption Date, the “Monthly
Conversion Price”
and
such 10 Trading Day period, the “Monthly
Conversion Period”);
provided,
further,
that
the Company may not pay the Monthly Redemption Amount in Conversion
Shares
unless (y) from the date the Holder receives the duly delivered Monthly
Redemption Notice through and until the date such Monthly Redemption
is paid in
full, the Equity Conditions have been satisfied, unless waived in writing
by the
Holder, and (z) as to such Monthly Redemption, prior to such Monthly
Conversion
Period (but not more than 5 Trading Days prior to the commencement
of the
Monthly Conversion Period), the Company shall have delivered to the
Holder’s
account with The Depository Trust Company a number of shares of Common
Stock to
be applied against such Monthly Redemption Share Amount equal to the
quotient of
(x) the applicable Monthly Redemption Share Amount divided by (y) the
lesser of
(1) the then Conversion Price and (2) 85% of the average of the VWAPs
for the 10
consecutive Trading Days ending on the 5th
Trading
Day that is immediately prior to commencement of the applicable Monthly
Conversion Period (the “Pre-Redemption
Conversion Shares”)
The
Holder may convert, pursuant to Section 4(a), any principal amount
of this
Debenture subject to a Monthly Redemption at any time prior to the
date that the
Monthly Redemption Amount, plus accrued but unpaid liquidated damages
and any
other amounts then owing to the Holder are due and paid in full. Unless
otherwise indicated by the Holder in the applicable Notice of Conversion,
any
principal amount of this Debenture converted during the applicable
Monthly
Conversion Period until the date the Monthly Redemption Amount is paid
in full
shall be first applied to the principal amount subject to the Monthly
Redemption
Amount payable in cash and then to the Monthly Redemption Share Amount.
Any
principal amount of this Debenture converted during the applicable
Monthly
Conversion Period in excess of the Monthly Redemption Amount shall
be applied
against the last principal amount of this Debenture scheduled to be
redeemed
hereunder, in reverse time order from the Maturity Date; provided,
however,
if any
such conversion is applied against such Monthly Redemption Amount,
the
Pre-Redemption Conversion Shares, if any were issued in connection
with such
Monthly Redemption or were not already applied to such conversions,
shall be
first applied against such conversion. The Company covenants and agrees
that it
will honor all Notice of Conversions tendered up until such amounts
are paid in
full. The Company’s determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all
of the
holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement, however, the eligibility of a holder to receive Conversion
Shares in
connection with a Monthly Redemption in compliance with clause (vii)
of the
definition of “Equity Conditions” as contemplated by clause (y) above shall be
determined on a holder by holder basis. At any time the Company delivers
a
notice to the Holder of its election to pay the Monthly Redemption
Amount in
shares of Common
Stock,
the Company shall file a prospectus supplement pursuant to Rule 424
disclosing
such election. Notwithstanding the foregoing, in the event the Company
elects to
pay a Holder a Monthly Redemption Amount in Conversion Shares, the
Holder may,
within five Trading Days following its receipt of such Monthly Redemption
Notice, deliver a written notice to the Company of its intention to
defer such
payment in Conversion Shares and
the
delivery of Pre-Redemption Conversion Shares (a
“Holder’s
Deferment Notice”).
Upon
delivery of a Holder’s Deferment Notice, the Monthly Redemption Amount otherwise
subject to such Monthly Redemption Notice shall thereafter be convertible
into
Common Stock, at the option of the Holder, in accordance with Section
4 hereof,
except that the conversion price as to such Monthly Redemption Amount
shall be
equal to the lesser of (i) the Conversion Price then in effect and
(ii) 85% of
the average of the VWAPs for the 10 consecutive Trading Days ending
on the
Trading Day that is immediately prior to the applicable Trading Day
the Holder
elects to convert such Monthly Redemption Amount.
b) Optional
Redemption at Election of Company.
Subject
to the provisions of this Section 6, at any time after the Effective
Date, the
Company may deliver a notice to the Holder (an “Optional
Redemption Notice”
and
the
date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”)
of its
irrevocable election to redeem all of the then outstanding principal
amount of
this Debenture for cash in an amount equal to the Optional Redemption
Amount on
the 10th
Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”
and
such redemption, the “Optional
Redemption”).
The
Optional Redemption Amount is payable in full on the Optional Redemption
Date.
The Company may only effect an Optional Redemption if each of the Equity
Conditions shall have been met on each Trading Day during the period
commencing
on the Optional Redemption Notice Date through to the Optional Redemption
Date
and
through and including the date payment of the Optional Redemption Amount
is
actually made.
If any
of the Equity Conditions shall cease to be satisfied at any time during
the 10
Trading Day period, then the Holder may elect to nullify the Optional
Redemption
Notice by notice to the Company within 3 Trading Days after the first
day on
which any such Equity Condition has not been met (provided that if,
by a
provision of the Transaction Documents, the Company is obligated to
notify the
Holder of the non-existence of an Equity Condition, such notice period
shall be
extended to the third Trading Day after proper notice from the Company)
in which
case the Optional Redemption Notice shall be null and void, ab initio.
The
Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice
through the
date all amounts owing thereon are due and paid in full.
c) Redemption
Procedure.
The
payment of cash or issuance of Common Stock, as applicable, pursuant
to an
Optional or Monthly Redemption shall be payable on the Optional or
Monthly
Redemption Date. If any portion of the payment pursuant to an Optional
or
Monthly Redemption shall not be paid by the Company by the applicable
due date,
interest shall accrue thereon at an interest rate equal to the lesser
of 18% per
annum or the maximum rate permitted by applicable law until such amount
is paid
in full.
Notwithstanding
anything herein contained to the contrary, if any portion of the Optional
or
Monthly Redemption Amount remains unpaid after such date, the Holder
may elect,
by written notice to the Company given at any time thereafter,
to invalidate such Optional or Monthly Redemption, ab initio,
and,
with respect to the Company’s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption.
Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem in cash or its elections under Section 6 shall
be
applied ratably among the Holders of Debentures.
The
Holder may elect to convert the outstanding principal amount of the
Debenture
pursuant to Section 4 prior to actual payment in cash for any redemption
under
this Section 6 by the delivery of a Notice of Conversion to the
Company.
Section
7. Negative
Covenants.
As long
as any portion of this Debenture remains outstanding, the Company shall
not, and
shall not permit any of its Subsidiaries to, directly or
indirectly:
a) other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee
or
suffer to exist any indebtedness for borrowed money of any kind, including
but
not limited to, a guarantee, on or with respect to any of its property
or assets
now owned or hereafter acquired or any interest therein or any income
or profits
therefrom;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to
exist any
Liens of any kind, on or with respect to any of its property or assets
now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c) amend
its
charter documents, including, without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely
affects
any rights of the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more
than a
de minimis
number
of shares of its Common Stock or Common Stock Equivalents other than
as to (a)
the Conversion Shares or Warrant Shares as permitted or required under
the
Transaction Documents and (b) repurchases of Common Stock or Common
Stock
Equivalents of departing officers and directors of the Company, provided
that
such repurchases shall not exceed an aggregate of $100,000 for all
officers and
directors during the term of this Debenture);
e) pay
cash
dividends or distributions on any equity securities of the Company;
f) enter
into any transaction with any Affiliate of the Company which would
be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less
than a
quorum otherwise required for board approval);
(g) sell
or
transfer any of its assets (other than the sale of inventory in the
ordinary
course of business consistent with past practice);
h) sell
or
transfer any of its assets to a Dormant Subsidiary; or
i) enter
into any agreement with respect to any of the foregoing.
Section
8. Events
of Default.
a) “Event
of Default”
means,
wherever used herein, any of the following events (whatever the reason
for such
event and whether such event shall be voluntary or involuntary or effected
by
operation of law or pursuant to any judgment, decree or order of any
court, or
any order, rule or regulation of any administrative or governmental
body):
i. any
default in the payment of (A) the principal amount of any Debenture
or (B)
liquidated damages and other amounts owing to a Holder on any Debenture,
as and
when the same shall become due and payable (whether on a Conversion
Date or the
Maturity Date or by acceleration or otherwise) which default, solely
in the case
of a default under clause (B) above, is not cured within 3 Trading
Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of
its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not
cured, if
possible to cure, within the earlier to occur
of
(A)
5
Trading
Days after notice of such failure sent by the Holder or by any other
Holder
and (B)
10 Trading Days after the Company has become or should have become
aware of such
failure;
iii. a
breach,
default or event of default (subject to any grace or cure period provided
in the
applicable agreement, document or instrument) shall occur under (A)
any of the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is obligated (and
not covered
by clause (vi) below);
iv. any
representation
or warranty made in this Debenture, any other Transaction Documents,
any written
statement pursuant hereto or thereto or any other report, financial
statement or
certificate made or delivered to the Holder or any other Holder shall
be
untrue or incorrect in any material respect as of the date when made
or deemed
made;
v. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
vi. the
Company
or any Subsidiary shall default on any of its obligations under any
mortgage,
credit agreement or other facility, indenture agreement, factoring
agreement or
other instrument under which there may be issued, or by which there
may be
secured or evidenced, any indebtedness for borrowed money or money
due under any
long term leasing or factoring arrangement that (a) involves an obligation
greater than $150,000, whether such indebtedness now exists or shall
hereafter
be created, and (b) results in such indebtedness becoming or being
declared due
and payable prior to the date on which it would otherwise become due
and
payable;
vii. the
Common Stock shall not be eligible for listing or quotation for trading
on a
Trading Market and shall not be eligible to resume listing or quotation
for
trading thereon within five Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of
33% of its
assets in one transaction or a series of related transactions (whether
or not
such sale would constitute a Change of Control Transaction);
ix. a
Registration Statement shall not have been declared effective by the
Commission
on or prior to the 180th calendar
day after the Closing Date;
x. if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (a) the effectiveness of the Registration Statement
lapses
for any reason or (b) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under
the
Registration Statement for a period of more than 20 consecutive Trading
Days or
30 non-consecutive Trading Days during any 12 month period; provided,
however,
that if
the Company
is negotiating a merger, consolidation, acquisition or sale of all
or
substantially all of its assets or a similar transaction and, in the
written
opinion of counsel to the Company, the Registration Statement would
be required
to be amended to include information concerning such pending transaction(s)
or
the parties thereto which information is not available or may not be
publicly
disclosed at the time, the Company shall be permitted an additional
10
consecutive Trading Days during any 12 month period pursuant to this
Section
8(a)(x);
xi. the
Company shall fail for any reason to deliver certificates to a Holder
prior to
the fifth Trading Day after a Conversion Date pursuant to Section 4(d)
or the
Company shall provide at any time notice to the Holder, including by
way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
xii. any
Person shall breach any agreement delivered to the initial Holders
pursuant to
Section 2.2(a) of the Purchase Agreement; or
xiii. any
monetary
judgment, writ or similar final process shall be entered or filed against
the
Company, any Subsidiary or any of their respective property or other
assets for
more than $50,000, and such judgment, writ or similar final process
shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days.
b) Remedies
Upon Event of Default.
If any
Event of Default occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid liquidated damages and other amounts owing
in respect
thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default
Amount.
Commencing 5 days after the occurrence of any Event of Default that
results in
the eventual acceleration of this Debenture, the interest rate on this
Debenture
shall accrue at an interest rate equal to the lesser of 18% per annum
or the
maximum rate permitted under applicable law. Upon the payment in full
of the
Mandatory Default Amount, the Holder shall promptly surrender this
Debenture to
or as directed by the Company. In connection with such acceleration
described
herein, the Holder need not provide, and the Company hereby waives,
any
presentment, demand, protest or other notice of any kind, and the Holder
may
immediately and without expiration of any grace period enforce any
and all of
its rights and remedies hereunder and all other remedies available
to it under
applicable law. Such acceleration may be rescinded and annulled by
Holder at any
time prior to payment hereunder and the Holder shall have all rights
as a holder
of the Debenture until such time, if any, as the Holder receives full
payment
pursuant to this Section 8(b). No such rescission or annulment shall
affect any
subsequent Event of Default or impair any right consequent thereon.
Section
9. Miscellaneous.
a) Notices.
Any and
all notices or other communications or deliveries to be provided by
the Holder
hereunder, including, without limitation, any Notice of Conversion,
shall be in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at
the address
set forth above, facsimile number ______________,
Attn: ______________________________________or
such
other facsimile number or address as the Company may specify for such
purpose by
notice to the Holder delivered in accordance with this Section 9. Any
and all
notices or other communications or deliveries to be provided by the
Company
hereunder shall be in writing and delivered personally, by facsimile,
or sent by
a nationally recognized overnight courier service addressed to each
Holder at
the facsimile number or address of such Holder appearing on the books
of the
Company, or if no such facsimile number or address appears, at the
principal
place of business of the Holder. Any notice or other communication
or deliveries
hereunder shall be deemed given and effective on the earliest of (i)
the date of
transmission, if such notice or communication is delivered via facsimile
at the
facsimile number specified in this Section 9 prior to 5:30 p.m. (New
York City
time), (ii) the date immediately following the date of transmission,
if such
notice or communication is
delivered
via facsimile at the facsimile number specified in this Section 9 between
5:30
p.m. (New York City time) and 11:59 p.m. (New York City time) on any
date, (iii)
the second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party
to whom such notice is required to be given.
b) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Debenture shall
alter or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, liquidated damages and accrued interest, as applicable,
on
this Debenture at the time, place, and rate, and in the coin or currency,
herein
prescribed. This Debenture is a direct debt obligation of the Company.
This
Debenture ranks pari passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c) Lost
or Mutilated Debenture.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company
shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen
or
destroyed Debenture, a new Debenture for the principal amount of this
Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership
hereof,
reasonably satisfactory to the Company.
d) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in
accordance
with the internal laws of the State of New York, without regard to
the
principles of conflict of laws thereof. Each party agrees that all
legal
proceedings concerning the interpretation, enforcement and defense
of the
transactions contemplated by any of the Transaction Documents (whether
brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state
and federal
courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents),
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
such New York Courts, or such New York Courts are improper or inconvenient
venue
for such proceeding. 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 via registered or certified mail
or
overnight delivery (with evidence of delivery) to such party at the
address in
effect for notices to it under this Debenture 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 other manner permitted by applicable law. Each party hereto
hereby
irrevocably waives, to the fullest extent permitted by applicable law,
any and
all right to trial by jury
in
any
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an
action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other
party for
its attorneys fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.
e) Waiver.
Any
waiver by the Company or the Holder of a breach of any provision of
this
Debenture shall not operate as or be construed to be a waiver of any
other
breach of such provision or of any breach of any other provision of
this
Debenture. The failure of the Company or the Holder to insist upon
strict
adherence to any term of this Debenture on one or more occasions shall
not be
considered a waiver or deprive that party of the right thereafter to
insist upon
strict adherence to that term or any other term of this Debenture.
Any waiver by
the Company or the Holder must be in writing.
f) Severability.
If any
provision of this Debenture is invalid, illegal or unenforceable, the
balance of
this Debenture shall remain in effect, and if any provision is inapplicable
to
any Person or circumstance, it shall nevertheless remain applicable
to all other
Persons and circumstances. If it shall be found that any interest or
other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically
be
lowered to equal the maximum rate of interest permitted under applicable
law.
The Company covenants (to the extent that it may lawfully do so) that
it shall
not at any time insist upon, plead, or in any manner whatsoever claim
or take
the benefit or advantage of, any stay, extension or usury law or other
law which
would prohibit or forgive the Company from paying all or any portion
of the
principal of or interest on this Debenture as contemplated herein,
wherever
enacted, now or at any time hereafter in force, or which may affect
the
covenants or the performance of this indenture, and the Company (to
the extent
it may lawfully do so) hereby expressly waives all benefits or advantage
of any
such law, and covenants that it will not, by resort to any such law,
hinder,
delay or impeded the execution of any power herein granted to the Holder,
but
will suffer and permit the execution of every such as though no such
law has
been enacted.
g) Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on
a day other
than a Business Day, such payment shall be made on the next succeeding
Business
Day.
h) Headings.
The
headings contained herein are for convenience only, do not constitute
a part of
this Debenture and shall not be deemed to limit or affect any of the
provisions
hereof.
i) Assumption.
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the
obligations of the Company under this Debenture and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory
to
the Holder (such approval not to be unreasonably withheld or delayed)
and (ii)
issue to the Holder a new
debenture
of such successor entity evidenced by a written instrument substantially
similar
in form and substance to this Debenture, including, without limitation,
having a
principal amount and interest rate equal to the principal amount and
the
interest rate of this Debenture and having similar ranking to this
Debenture,
which shall be satisfactory to the Holder (any such approval not to
be
unreasonably withheld or delayed). The provisions of this Section 9(i)
shall apply similarly and equally to successive Fundamental Transactions
and
shall be applied without regard to any limitations of this
Debenture.
j) Secured
Obligation.
The
obligations of the Company under this Debenture are secured by all
assets of the
Company and each Subsidiary pursuant to the Security Agreement, dated
as of
October 25, 2006, between the Company, the Subsidiaries of the Company
and the
Secured Parties (as defined therein).
*********************
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
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OXIS
INTERNATIONAL, INC. |
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Date: |
By: |
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Name: |
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Title: |
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Secured Convertible
Debenture due October 25, 2008 of Oxis International, Inc., a Delaware
corporation (the “Company”),
into
shares of common stock, par value $.001 per share (the “Common
Stock”),
of
the Company according to the conditions hereof, as of the date written
below. If
shares of Common Stock are to be issued in the name of a person other
than the
undersigned, the undersigned will pay all transfer taxes payable with
respect
thereto and is delivering herewith such certificates and opinions as
reasonably
requested by the Company in accordance therewith. No fee will be charged
to the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and
warrants to
the Company that its ownership of the Common Stock does not exceed
the amounts
specified under Section 4 of this Debenture, as determined in accordance
with
Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements
under the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
calculations:
Date
to
Effect Conversion:
Principal
Amount of Debenture to be Converted:
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address:
Schedule
1
CONVERSION
SCHEDULE
The
Secured Convertible Debentures due on October 25, 2008 in the aggregate
principal amount of $____________ issued by Oxis International, Inc.
This
Conversion Schedule reflects conversions made under Section 4 of the
above
referenced Debenture.
Dated:
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
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Company
Attest
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29
Exhibit
10.3
EXHIBIT
C
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE
PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY SUCH
SECURITIES.
[SERIES
A/B/C/D/E] COMMON
STOCK PURCHASE WARRANT
OXIS
INTERNATIONAL, INC.
Warrant
Shares: [_______ Initial
Exercise Date: October 25, 2006
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received, _____________ (the “Holder”),
is
entitled, upon the terms and subject to the limitations on exercise
and the
conditions hereinafter set forth, at any time on or after ___1
(the
“Initial
Exercise Date”)
and on
or prior to the close of business on the ___2
(the
“Termination
Date”)
but
not thereafter, to subscribe for and purchase from Oxis International,
Inc., a
Delaware corporation (the “Company”),
up to
______ shares (the “Warrant
Shares”)
of
common stock, par value $.001 per share, of the Company (the “Common
Stock”).
The
purchase price of one share of Common Stock under this Warrant shall
be equal to
the Exercise Price, as defined in Section 2(b).
Section
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings
set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”),
dated
October 25, 2006, among the Company and the purchasers signatory
thereto.
1 The
date hereof as to Series A, B and C Warrants and the Vesting Date
(as defined in
Section 2(d)(ii)) as to the Series D and E Warrants
2 5
year anniversary of the Initial Exercise Date as to Series A Warrants,
the one
year anniversary of the Initial Exercise Date as to Series B Warrants,
the
earlier of the one year anniversary of the Effective Date and the
two year
anniversary of the Initial Exercise Date as to the Series C Warrants
and the
earlier of the five year anniversary of the Vesting Date or the six
year
anniversary of the issuance date as to the Series D and E
Warrants.
Section
2. Exercise.
a) Exercise
of Warrant.
Exercise of the purchase rights represented by this Warrant may be
made, in
whole or in part, at any time or times on or after the Initial Exercise
Date and
on or before the Termination Date by delivery to the Company of a
duly executed
facsimile copy of the Notice of Exercise Form annexed hereto (or
such other
office or agency of the Company as it may designate by notice in
writing to the
registered Holder at the address of such Holder appearing on the
books of the
Company); and, within 3 Trading Days of the date said Notice of Exercise
is
delivered to the Company, the Company shall have received payment
of the
aggregate Exercise Price of the shares thereby purchased by wire
transfer or
cashier’s check drawn on a United States bank. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender
this
Warrant to the Company until the Holder has purchased all of the
Warrant Shares
available hereunder and the Warrant has been exercised in full, in
which case,
the Holder shall surrender this Warrant to the Company for cancellation
within 3
Trading Days of the date the final Notice of Exercise is delivered
to the
Company. Partial exercises of this Warrant resulting in purchases
of a portion
of the total number of Warrant Shares available hereunder shall have
the effect
of lowering the outstanding number of Warrant Shares purchasable
hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder
and the Company shall maintain records showing the number of Warrant
Shares
purchased and the date of such purchases. The Company shall deliver
any
objection to any Notice of Exercise Form within 1 Business Day of
receipt of
such notice. In the event of any dispute or discrepancy, the records
of the
Holder shall be controlling and determinative in the absence of manifest
error.
The Holder and any assignee, by acceptance of this Warrant, acknowledge
and
agree that, by reason of the provisions of this paragraph, following
the
purchase of a portion of the Warrant Shares hereunder, the number
of Warrant
Shares available for purchase hereunder at any given time may be
less than the
amount stated on the face hereof.
b) Exercise
Price.
The
exercise price per share of the Common Stock under this Warrant shall
be
$___3,
subject
to adjustment hereunder (the “Exercise
Price”).
c) Cashless
Exercise.
If at
any time after both (x) ____4
from the
date of issuance of this Warrant and (y) the required Effectiveness
Date (as
defined in the Registration Rights Agreement) of the Registration
Statement as
to the Warrant Shares subject to a cashless exercise pursuant to
this Section
3(c), there is no effective Registration Statement registering, or
no current
prospectus available for, the resale of the Warrant Shares by the
Holder, then
this Warrant may also be exercised at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for
the
number of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)]
by (A), where:
3 $0.35
as
to the Series A, C and D Warrant and $0.385 as to the Series B
and E
Warrants.
4 one
year
as to Series A, C, D and E Warrants and 11 months as to Series
B
Warrants.
(A)
= the
VWAP on the Trading Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
(X)
= the
number of Warrant Shares issuable upon exercise of this Warrant in
accordance
with the terms of this Warrant by means of a cash exercise rather
than a
cashless exercise.
Notwithstanding
anything herein to the contrary, (i) on the Termination Date, this
Warrant shall
be automatically exercised via cashless exercise pursuant to this
Section 2(c)
and (ii) this Warrant may be exercised via a cashless exercise during
the 30
Trading Days immediately prior to the Termination Date if there is
no effective
Registration Statement registering, or no current prospectus available
for, the
resale of the Warrant Shares by the Holder.
d) Exercise
Limitations
|
i.
|
Holder’s
Restrictions.
[FOR HOLDERS THAT ELECT A 9.99% LIMITATION][The Company
shall not effect
any exercise of this Warrant, and a Holder shall not have
the right to
exercise any portion of this Warrant, pursuant to Section
2(c) or
otherwise, to the extent that after giving effect to such
issuance after
exercise as set forth on the applicable Notice of Exercise,
such Holder
(together with such Holder’s Affiliates, and any other person or entity
acting as a group together with such Holder or any of such
Holder’s
Affiliates), as set forth on the applicable Notice of Exercise,
would
beneficially own in excess of the Beneficial Ownership
Limitation (as
defined below). For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by such Holder
and its
Affiliates shall include the number of shares of Common
Stock issuable
upon exercise of this Warrant with respect to which such
determination is
being made, but shall exclude the number of shares of Common
Stock which
would be issuable upon (A) exercise of the remaining, nonexercised
portion
of this Warrant beneficially owned by such Holder or any
of its Affiliates
and (B) exercise or conversion of the unexercised or nonconverted
portion
of any other securities of the Company (including, without
limitation, any
other Debentures or Warrants) subject to a limitation on
conversion or
exercise analogous to the limitation contained herein beneficially
owned
by such Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(d)(i),
beneficial
ownership shall be calculated in accordance with Section
13(d) of the
Exchange Act and the rules and regulations promulgated
thereunder, it
being acknowledged by a Holder that the Company is not
representing to
such Holder that such calculation is in compliance with
Section 13(d) of
the Exchange Act and such Holder is solely responsible
for any schedules
required to be filed in accordance therewith. To the extent
that the
limitation contained in this Section
|
2(d)(i)
applies, the determination of whether this Warrant is exercisable
(in relation
to other securities owned by such Holder together with any Affiliates)
and of
which a portion of this Warrant is exercisable shall be in the sole
discretion
of a Holder, and the submission of a Notice of Exercise shall be
deemed to be
each Holder’s determination of whether this Warrant is exercisable (in relation
to other securities owned by such Holder together with any Affiliates)
and of
which portion of this Warrant is exercisable, in each case subject
to such
aggregate percentage limitation, and the Company shall have no obligation
to
verify or confirm the accuracy of such determination. In addition,
a
determination as to any group status as contemplated above shall
be determined
in accordance with Section 13(d) of the Exchange Act and the rules
and
regulations promulgated thereunder. For purposes of this Section
2(d)(i), in
determining the number of outstanding shares of Common Stock, a Holder
may rely
on the number of outstanding shares of Common Stock as reflected
in (x) the
Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y)
a more
recent public announcement by the Company or (z) any other notice
by the Company
or the Company’s Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing
to such
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined
after
giving effect to the conversion or exercise of securities of the
Company,
including this Warrant, by such Holder or its Affiliates since the
date as of
which such number of outstanding shares of Common Stock was reported.
The
“Beneficial
Ownership Limitation”
shall
be 9.99% of the number of shares of the Common Stock outstanding
immediately
after giving effect to the issuance of shares of Common Stock issuable
upon
exercise of this Warrant. The provisions of this paragraph shall
be construed
and implemented in a manner otherwise than in strict conformity with
the terms
of this Section 2(d)(i) to correct this paragraph (or any portion
hereof) which
may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary
or
desirable to properly give effect to such limitation. The limitations
contained
in this paragraph shall apply to a successor holder of this Warrant.][FOR
HOLDERS THAT ELECT 4.99% LIMITATION][ The Company shall not effect
any exercise
of this Warrant, and a Holder shall not have the right to exercise
any portion
of this Warrant, pursuant to Section 2(c) or otherwise, to the extent
that after
giving effect to such issuance after exercise as set forth on the
applicable
Notice of Exercise, such Holder (together with such Holder’s Affiliates, and any
other person or entity acting as a group together with such Holder
or any of
such Holder’s Affiliates), as set forth on the applicable Notice of Exercise,
would beneficially own in excess of the Beneficial Ownership Limitation
(as
defined below). For purposes of the foregoing sentence,
the
number of shares of Common Stock beneficially owned by such Holder
and its
Affiliates shall include the number of shares of Common Stock issuable
upon
exercise of this Warrant with respect to which such determination
is being made,
but shall exclude the number of shares of Common Stock which would
be issuable
upon (A) exercise of the remaining, nonexercised portion of this
Warrant
beneficially owned by such Holder or any of its Affiliates and (B)
exercise or
conversion of the unexercised or nonconverted portion of any other
securities of
the Company (including, without limitation, any other Debentures
or Warrants)
subject to a limitation on conversion or exercise analogous to the
limitation
contained herein beneficially owned by such Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(d)(i), beneficial ownership shall be calculated in
accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated
thereunder, it being acknowledged by a Holder that the Company is
not
representing to such Holder that such calculation is in compliance
with Section
13(d) of the Exchange Act and such Holder is solely responsible for
any
schedules required to be filed in accordance therewith. To the extent
that the
limitation contained in this Section 2(d)(i) applies, the determination
of
whether this Warrant is exercisable (in relation to other securities
owned by
such Holder together with any Affiliates) and of which a portion
of this Warrant
is exercisable shall be in the sole discretion of a Holder, and the
submission
of a Notice of Exercise shall be deemed to be each Holder’s determination of
whether this Warrant is exercisable (in relation to other securities
owned by
such Holder together with any Affiliates) and of which portion of
this Warrant
is exercisable, in each case subject to such aggregate percentage
limitation,
and the Company shall have no obligation to verify or confirm the
accuracy of
such determination. In addition, a determination as to any group
status as
contemplated above shall be determined in accordance with Section
13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes
of this Section 2(d)(i), in determining the number of outstanding
shares of
Common Stock, a Holder may rely on the number of outstanding shares
of Common
Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB,
as the case may be, (y) a more recent public announcement by the
Company or (z)
any other notice by the Company or the Company’s Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm
orally
and in writing to such Holder the number of shares of Common Stock
then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise
of
securities of the Company, including this Warrant, by such Holder
or its
Affiliates since the date as of which such number of outstanding
shares of
Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be
4.99%
of
the number of shares of the Common Stock outstanding immediately
after giving
effect to the issuance of shares of Common Stock issuable upon exercise
of this
Warrant. The Beneficial Ownership Limitation provisions of this Section
2(d)(i)
may be waived by such Holder, at the election of such Holder, upon
not less than
61 days’ prior notice to the Company to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common
Stock upon
exercise of this Warrant, and the provisions of this Section 2(d)
shall continue
to apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation
from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership
Limitation may not be further waived by such Holder. The provisions
of this
paragraph shall be construed and implemented in a manner otherwise
than in
strict conformity with the terms of this Section 2(d)(i) to correct
this
paragraph (or any portion hereof) which may be defective or inconsistent
with
the intended Beneficial Ownership Limitation herein contained or
to make changes
or supplements necessary or desirable to properly give effect to
such
limitation. The limitations contained in this paragraph shall apply
to a
successor holder of this Warrant.]
ii. [AS
TO
SERIES D AND E WARRANTS ONLY][Vesting.
The
Company shall not effect an exercise of any portion of this Warrant,
and the
Holder shall not have the right to exercise any portion of this Warrant,
until
the Vesting Date. The “Vesting
Date”
means
the Trading Day immediately following the exercise in full or in
part by the
Holder of the Series C Warrant delivered pursuant to Section 2.2(a)(vi)
of the
Purchase Agreement; provided,
however,
that,
in the event of an exercise by the Holder of less than all Warrant
Shares
underlying the Series C Warrant, the Vesting Date shall apply only
to such
percentage of the Warrant Shares underlying this Warrant that is
equal to the
percentage obtained by dividing (a) the number of Warrant Shares
underlying the
Series C Warrant that is subject to such exercise by (b) the total
number of
Warrant Shares underlying the Series C Warrant (such percentage,
the
“Vesting
Percentage”
and
the
Vesting Percentage multiplied by the Warrant Shares underlying this
Warrant, the
“Vesting
Maximum”).
The
Vesting Date shall apply only to such number of Warrant Shares that
is equal to
the Vesting Maximum. For purposes of clarity, (A) if the Holder does
not
exercise the Series C Warrant, the Vesting Date applies to none of
the Warrant
Shares underlying this Warrant, (B) if the Holder exercises in full
the Series C
Warrant, the Vesting Date applies to all of the Warrant Shares underlying
this
Warrant and (C) if the Holder exercises 50% of the Series C Warrant,
the Vesting
Date applies to 50% of the Warrant Shares underlying this Warrant.]
e) Mechanics
of Exercise.
i. Authorization
of Warrant Shares.
The
Company covenants that all Warrant Shares which may be issued upon
the exercise
of the purchase rights represented by this Warrant will, upon exercise
of the
purchase rights represented by this Warrant, be duly authorized,
validly issued,
fully paid and nonassessable and free from all taxes, liens and charges
created
by the Company in respect of the issue thereof (other than taxes
in respect of
any transfer occurring contemporaneously with such issue).
ii. Delivery
of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be transmitted
by the transfer
agent of the Company to the Holder by crediting the account of the
Holder’s
prime broker with the Depository Trust Company through its Deposit
Withdrawal
Agent Commission (“DWAC”)
system
if the Company is a participant in such system, and otherwise by
physical
delivery to the address specified by the Holder in the Notice of
Exercise within
3 Trading Days from the delivery to the Company of the Notice of
Exercise Form,
surrender of this Warrant (if required) and payment of the aggregate
Exercise
Price as set forth above (“Warrant
Share Delivery Date”).
This
Warrant shall be deemed to have been exercised on the date the Exercise
Price is
received by the Company. The Warrant Shares shall be deemed to have
been issued,
and Holder or any other person so designated to be named therein
shall be deemed
to have become a holder of record of such shares for all purposes,
as of the
date the Warrant has been exercised by payment to the Company of
the Exercise
Price (or by cashless exercise, if permitted) and all taxes required
to be paid
by the Holder, if any, pursuant to Section 2(e)(vii) prior to the
issuance of
such shares, have been paid.
iii. Delivery
of New Warrants Upon Exercise.
If this
Warrant shall have been exercised in part, the Company shall, at
the request of
a Holder and upon surrender of this Warrant certificate, at the time
of delivery
of the certificate or certificates representing Warrant Shares, deliver
to
Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall
in all other
respects be identical with this Warrant.
iv. Rescission
Rights.
If the
Company fails to cause its transfer agent to transmit to the Holder
a
certificate or certificates representing the Warrant Shares pursuant
to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder
will have
the right to rescind such exercise.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise.
In
addition to any other rights available to the Holder, if the Company
fails to
cause its transfer agent to transmit to the Holder a certificate
or certificates
representing the Warrant Shares pursuant to an exercise on or before
the Warrant
Share Delivery Date, and
if
after
such date the Holder is required by its broker to purchase (in an
open market
transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise
(a
“Buy-In”),
then
the Company shall (1) pay in cash to the Holder the amount by which
(x) the
Holder’s total purchase price (including brokerage commissions, if any)
for the
shares of Common Stock so purchased exceeds (y) the amount obtained
by
multiplying (A) the number of Warrant Shares that the Company was
required to
deliver to the Holder in connection with the exercise at issue times
(B) the
price at which the sell order giving rise to such purchase obligation
was
executed, and (2) at the option of the Holder, either reinstate the
portion of
the Warrant and equivalent number of Warrant Shares for which such
exercise was
not honored or deliver to the Holder the number of shares of Common
Stock that
would have been issued had the Company timely complied with its exercise
and
delivery obligations hereunder. For example, if the Holder purchases
Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to
an attempted exercise of shares of Common Stock with an aggregate
sale price
giving rise to such purchase obligation of $10,000, under clause
(1) of the
immediately preceding sentence the Company shall be required to pay
the Holder
$1,000. The Holder shall provide the Company written notice indicating
the
amounts payable to the Holder in respect of the Buy-In and, upon
request of the
Company, evidence of the amount of such loss. Nothing herein shall
limit a
Holder’s right to pursue any other remedies available to it hereunder, at
law or
in equity including, without limitation, a decree of specific performance
and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of
the Warrant as
required pursuant to the terms hereof.
vi. No
Fractional Shares or Scrip.
No
fractional shares or scrip representing fractional shares shall be
issued upon
the exercise of this Warrant. As to any fraction of a share which
Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its
election, either pay a cash adjustment in respect of such final fraction
in an
amount equal to such fraction multiplied by the Exercise Price or
round up to
the next whole share.
vii. Charges,
Taxes and Expenses.
Issuance of certificates for Warrant Shares shall be made without
charge to the
Holder for any issue or transfer tax or other incidental expense
in respect of
the issuance of such certificate, all of which taxes and expenses
shall be paid
by the Company, and such certificates shall be issued in the name
of the Holder
or in such name or names as may be directed by the Holder; provided,
however,
that in
the event certificates for Warrant Shares are to be issued in a name
other than
the name of the Holder, this Warrant when surrendered for exercise
shall be
accompanied by the Assignment Form
attached
hereto duly executed by the Holder; and the Company may require,
as a condition
thereto, the payment of a sum sufficient to reimburse it for any
transfer tax
incidental thereto.
viii. Closing
of Books.
The
Company will not close its stockholder books or records in any manner
which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.
f) [AS
TO
SERIES C, D and E Warrants ONLY] [Call Provision.
Subject
to the provisions of Section 2(d) and this Section 2(f), if, after
the Effective
Date [and Vesting Date] [as to the Series D and E Warrants] (i) the
average VWAP
for each of 20 consecutive Trading Days (the “Measurement
Period,”
which
20 consecutive Trading Day period shall not have commenced until
after the
Effective Date [and Vesting Date]) exceeds $____5
(subject
to adjustment for forward and reverse stock splits, recapitalizations,
stock
dividends and the like after the Initial Exercise Date), (ii) the
daily dollar
trading volume for at least 10 Trading Days during such Measurement
Period,
exceeds $50,000 of shares of Common Stock per Trading Day and (iii)
the Holder
is not in possession of any information that constitutes, or might
constitute,
material non-public information, then the Company may, within one
Trading Day of
the end of such Measurement Period, call for cancellation of all
or any portion
of this Warrant for which a Notice of Exercise has not yet been delivered
(such
right, a “Call”)
for
consideration equal to $.001 per share. To exercise this right, the
Company must
deliver to the Holder an irrevocable written notice (a “Call
Notice”),
indicating therein the portion of unexercised portion of this Warrant
to which
such notice applies. If the conditions set forth below for such Call
are
satisfied from the period from the date of the Call Notice through
and including
the Call Date (as defined below), then any portion of this Warrant
subject to
such Call Notice for which a Notice of Exercise shall not have been
received by
the Call Date will be cancelled at 6:30 p.m. (New York City time)
on the
twentieth Trading Day after the date the Call Notice is received
by the Holder
(such date and time, the “Call
Date”).
Any
unexercised portion of this Warrant to which the Call Notice does
not pertain
will be unaffected by such Call Notice. In furtherance thereof, the
Company
covenants and agrees that it will honor all Notices of Exercise with
respect to
Warrant Shares subject to a Call Notice that are tendered through
6:30 p.m. (New
York City time) on the Call Date. The parties agree that any Notice
of Exercise
delivered following a Call Notice which calls less than all the Warrants
shall
first reduce to zero the number of Warrant Shares subject to such
Call Notice
prior to reducing the remaining Warrant Shares available for purchase
under this
Warrant. For example, if (x) this Warrant then permits the Holder
to acquire 100
Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares,
and (z) prior
to 6:30 p.m. (New York City time) on the Call Date the Holder tenders
a Notice
of Exercise in respect of 50 Warrant Shares, then (1) on the Call
Date the right
under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled,
(2) the Company, in the time and manner required under this Warrant,
will have
issued and delivered to the Holder 50 Warrant Shares in respect of
the exercises
following receipt of the Call Notice, and (3) the Holder may, until
the
Termination Date, exercise this Warrant for 25 Warrant Shares (subject
to
adjustment as herein provided
5
$1.05
as to Series C and D Warrants, $1.15 as to Series E Warrants.
and
subject to subsequent Call Notices). Subject again to the provisions
of this
Section 2(f), the Company may deliver subsequent Call Notices for
any portion of
this Warrant for which the Holder shall not have delivered a Notice
of Exercise.
Notwithstanding anything to the contrary set forth in this Warrant,
the Company
may not deliver a Call Notice or require the cancellation of this
Warrant (and
any such Call Notice shall be void), unless, from the beginning of
the
Measurement Period through the Call Date, (i) the Company shall have
honored in
accordance with the terms of this Warrant all Notices of Exercise
delivered by
6:30 p.m. (New York City time) on the Call Date, and (ii) the Registration
Statement shall be effective as to all Warrant Shares and the prospectus
thereunder available for use by the Holder for the resale of all
such Warrant
Shares, and (iii) the Common Stock shall be listed or quoted for
trading on the
Trading Market, and (iv) there is a sufficient number of authorized
shares of
Common Stock for issuance of all Securities under the Transaction
Documents, and
(v) the issuance of the shares shall not cause a breach of any provision
of 2(d)
herein. The Company’s right to call the Warrants under this Section 2(f) shall
be exercised ratably among the Holders based on each Holder’s initial purchase
of Warrants.]
Section
3. Certain Adjustments.
a) Stock
Dividends and Splits.
If the
Company, at any time while this Warrant is outstanding: (A) pays
a stock
dividend or otherwise make a distribution or distributions on shares
of its
Common Stock or any other equity or equity equivalent securities
payable in
shares of Common Stock (which, for avoidance of doubt, shall not
include any
shares of Common Stock issued by the Company upon exercise of this
Warrant), (B)
subdivides outstanding shares of Common Stock into a larger number
of shares,
(C) combines (including by way of reverse stock split) outstanding
shares of
Common Stock into a smaller number of shares, or (D) issues by reclassification
of shares of the Common Stock any shares of capital stock of the
Company, then
in each case the Exercise Price shall be multiplied by a fraction
of which the
numerator shall be the number of shares of Common Stock (excluding
treasury
shares, if any) outstanding immediately before such event and of
which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event and the number of shares issuable upon
exercise of
this Warrant shall be proportionately adjusted. Any adjustment made
pursuant to
this Section 3(a) shall become effective immediately after the record
date for
the determination of stockholders entitled to receive such dividend
or
distribution and shall become effective immediately after the effective
date in
the case of a subdivision, combination or re-classification.
b) Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while
this Warrant
is outstanding, shall sell or grant any option to purchase or sell
or grant any
right to reprice its securities, or otherwise dispose of or issue
(or announce
any offer, sale, grant or any option to purchase or other disposition)
any
Common Stock or Common Stock Equivalents entitling any Person to
acquire shares
of Common Stock, at an effective price per share less than the then
Exercise
Price (such lower price, the “Base
Share Price”
and
such issuances collectively, a “Dilutive
.Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued
shall at
any time, whether by operation of purchase price adjustments, reset
provisions,
floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such
issuance,
be entitled to receive shares of Common Stock at an effective price
per share
which is less than the Exercise Price, such issuance shall be deemed
to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced
to equal
the Base Share Price and the number of Warrant Shares issuable hereunder
shall
be increased such that the aggregate Exercise Price payable hereunder,
after
taking into account the decrease in the Exercise Price, shall be
equal to the
aggregate Exercise Price prior to such adjustment. Such adjustment
shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustments shall be made, paid
or issued
under this Section 3(b) in respect of an Exempt Issuance. The Company
shall
notify the Holder in writing, no later than the Trading Day following
the
issuance of any Common Stock or Common Stock Equivalents subject
to this
section, indicating therein the applicable issuance price, or applicable
reset
price, exchange price, conversion price and other pricing terms (such
notice the
“Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a
Dilutive
Issuance Notice pursuant to this Section 3(b), upon the occurrence
of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder
is
entitled to receive a number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base Share
Price in
the Notice of Exercise.
c) Subsequent
Rights Offerings.
If the
Company, at any time while the Warrant is outstanding, shall issue
rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock
at a price
per share less than the VWAP at the record date mentioned below,
then the
Exercise Price shall be multiplied by a fraction, of which the denominator
shall
be the number of shares of the Common Stock outstanding on the date
of issuance
of such rights or warrants plus the number of additional shares of
Common Stock
offered for subscription or purchase, and of which the numerator
shall be the
number of shares of the Common Stock outstanding on the date of issuance
of such
rights or warrants plus the number of shares which the aggregate
offering price
of the total number of shares so offered (assuming receipt by the
Company in
full of all consideration payable upon exercise of such rights, options
or
warrants) would purchase at such VWAP. Such adjustment shall be made
whenever
such rights or warrants are issued, and shall become effective immediately
after
the record date for the determination of stockholders entitled to
receive such
rights, options or warrants.
d) Pro
Rata Distributions.
If the
Company, at any time prior to the Termination Date, shall distribute
to all
holders of Common Stock (and not to Holders of the Warrants) evidences
of its
indebtedness or assets (including cash and cash dividends) or rights
or warrants
to subscribe for or purchase any security other than the Common Stock
(which
shall be subject to Section 3(b)), then in each such case the Exercise
Price
shall be adjusted by multiplying the Exercise Price in effect immediately
prior
to the record date fixed for determination of stockholders entitled
to receive
such distribution by a fraction of which the denominator shall be
the VWAP
determined as of the record date mentioned above, and of which the
numerator
shall be such VWAP on such record date
less
the
then per share fair market value at such record date of the portion
of such
assets or evidence of indebtedness so distributed applicable to one
outstanding
share of the Common Stock as determined by the Board of Directors
in good faith.
In either case the adjustments shall be described in a statement
provided to the
Holder of the portion of assets or evidences of indebtedness so distributed
or
such subscription rights applicable to one share of Common Stock.
Such
adjustment shall be made whenever any such distribution is made and
shall become
effective immediately after the record date mentioned above.
e) Fundamental
Transaction.
If, at
any time while this Warrant is outstanding, (A) the Company effects
any merger
or consolidation of the Company with or into another Person, (B)
the Company
effects any sale of all or substantially all of its assets in one
or a series of
related transactions, (C) any tender offer or exchange offer (whether
by the
Company or another Person) is completed pursuant to which holders
of Common
Stock are permitted to tender or exchange their shares for other
securities,
cash or property, or (D) the Company effects any reclassification
of the Common
Stock or any compulsory share exchange pursuant to which the Common
Stock is
effectively converted into or exchanged for other securities, cash
or property
(in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent exercise of this Warrant, the Holder shall have
the right to
receive, for each Warrant Share that would have been issuable upon
such exercise
immediately prior to the occurrence of such Fundamental Transaction,
at the
option of the Holder, (a) upon exercise of this Warrant, the number
of shares of
Common Stock of the successor or acquiring corporation or of the
Company, if it
is the surviving corporation, and any additional consideration (the
“Alternate
Consideration”)
receivable upon or as a result of such reorganization, reclassification,
merger,
consolidation or disposition of assets by a Holder of the number
of shares of
Common Stock for which this Warrant is exercisable immediately prior
to such
event or (b) if the Company is acquired in an all cash transaction,
cash equal
to the value of this Warrant as determined in accordance with the
Black-Scholes
option pricing formula. For purposes of any such exercise, the determination
of
the Exercise Price shall be appropriately adjusted to apply to such
Alternate
Consideration based on the amount of Alternate Consideration issuable
in respect
of one share of Common Stock in such Fundamental Transaction, and
the Company
shall apportion the Exercise Price among the Alternate Consideration
in a
reasonable manner reflecting the relative value of any different
components of
the Alternate Consideration. If holders of Common Stock are given
any choice as
to the securities, cash or property to be received in a Fundamental
Transaction,
then the Holder shall be given the same choice as to the Alternate
Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any
successor to the Company or surviving entity in such Fundamental
Transaction
shall issue to the Holder a new warrant consistent with the foregoing
provisions
and evidencing the Holder’s right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor
or
surviving entity to comply with the provisions of this Section 3(e)
and insuring
that this Warrant (or any such replacement security) will be similarly
adjusted
upon any subsequent transaction analogous to a Fundamental
Transaction.
f) Calculations.
All
calculations under this Section 3 shall be made to the nearest cent
or the
nearest 1/100th of a share, as the case may be. For purposes of this
Section 3,
the number of shares of Common Stock deemed to be issued and outstanding
as of a
given date shall be the sum of the number of shares of Common Stock
(excluding
treasury shares, if any) issued and outstanding.
g) Voluntary
Adjustment By Company.
The
Company may at any time during the term of this Warrant reduce the
then current
Exercise Price to any amount and for any period of time deemed appropriate
by
the Board of Directors of the Company.
h) Notice
to Holder.
i.
Adjustment
to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to any provision
of this
Section 3, the Company shall promptly mail to the Holder a notice
setting forth
the Exercise Price after such adjustment and setting forth a brief
statement of
the facts requiring such adjustment. If the Company issues a variable
rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company
shall be deemed to have issued Common Stock or Common Stock Equivalents
at the
lowest possible conversion or exercise price at which such securities
may be
converted or exercised in the case of a Variable Rate Transaction
(as defined in
the Purchase Agreement).
ii. Notice
to Allow Exercise by Holder.
If (A)
the Company shall declare a dividend (or any other distribution in
whatever
form) on the Common Stock; (B) the Company shall declare a special
nonrecurring
cash dividend on or a redemption of the Common Stock; (C) the Company
shall
authorize the granting to all holders of the Common Stock rights
or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any
rights; (D) the approval of any stockholders of the Company shall
be required in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all
or
substantially all of the assets of the Company, of any compulsory
share exchange
whereby the Common Stock is converted into other securities, cash
or property;
(E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the
Company shall cause to be mailed to the Holder at its last address
as it shall
appear upon the Warrant Register of the Company, at least 20 calendar
days prior
to the applicable record or effective date hereinafter specified,
a notice
stating (x) the date on which a record is to be taken for the purpose
of such
dividend, distribution, redemption, rights or warrants, or if a record
is not to
be taken, the date as of which the holders of the Common Stock of
record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or
close, and the date as of which it is
expected
that holders of the Common Stock of record shall be entitled to exchange
their
shares of the Common Stock for securities, cash or other property
deliverable
upon such reclassification, consolidation, merger, sale, transfer
or share
exchange; provided that the failure to mail such notice or any defect
therein or
in the mailing thereof shall not affect the validity of the corporate
action
required to be specified in such notice. The Holder is entitled to
exercise this
Warrant during the 20-day period commencing on the date of such notice
to the
effective date of the event triggering such notice.
Section
4. Transfer
of Warrant.
a) Transferability.
Subject
to compliance with any applicable securities laws and the conditions
set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the
Purchase
Agreement, this Warrant and all rights hereunder (including, without
limitation,
any registration rights) are transferable, in whole or in part, upon
surrender
of this Warrant at the principal office of the Company or its designated
agent,
together with a written assignment of this Warrant substantially
in the form
attached hereto duly executed by the Holder or its agent or attorney
and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.
Upon such surrender and, if required, such payment, the Company shall
execute
and deliver a new Warrant or Warrants in the name of the assignee
or assignees
and in the denomination or denominations specified in such instrument
of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion
of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A
Warrant, if properly assigned, may be exercised by a new holder for
the purchase
of Warrant Shares without having a new Warrant issued.
b) New
Warrants.
This
Warrant may be divided or combined with other Warrants upon presentation
hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are
to be issued,
signed by the Holder or its agent or attorney. Subject to compliance
with
Section 4(a), as to any transfer which may be involved in such division
or
combination, the Company shall execute and deliver a new Warrant
or Warrants in
exchange for the Warrant or Warrants to be divided or combined in
accordance
with such notice.
c) Warrant
Register.
The
Company shall register this Warrant, upon records to be maintained
by the
Company for that purpose (the “Warrant
Register”),
in
the name of the record Holder hereof from time to time. The Company
may deem and
treat the registered Holder of this Warrant as the absolute owner
hereof for the
purpose of any exercise hereof or any distribution to the Holder,
and for all
other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions.
If,
at the
time
of
the surrender of this Warrant in connection with any transfer of
this Warrant,
the transfer of this Warrant shall not be registered pursuant to
an effective
registration
statement under the Securities Act
and
under
applicable state securities or blue sky laws, the Company may require,
as a
condition
of allowing such transfer (i) that the Holder or transferee of this
Warrant, as
the case may be, furnish to the Company a written opinion of counsel
(which
opinion shall be in form, substance and scope customary for opinions
of counsel
in comparable transactions) to the effect that such transfer may
be made
without
registration under
the
Securities Act and under applicable state securities or blue sky
laws, (ii) that
the holder or transferee execute and deliver to the Company an investment
letter
in form and substance acceptable to the Company and (iii) that the
transferee be
an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act.
Section
5. Miscellaneous.
a) No
Rights as Shareholder Until Exercise.
This
Warrant does not entitle the Holder to any voting rights or other
rights as a
shareholder of the Company prior to the exercise hereof as set forth
in Section
2(e)(ii).
b) Loss,
Theft, Destruction or Mutilation of Warrant.
The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant
or any stock certificate relating to the Warrant Shares, and in case
of loss,
theft or destruction, of indemnity or security reasonably satisfactory
to it
(which, in the case of the Warrant, shall not include the posting
of any bond),
and upon surrender and cancellation of such Warrant or stock certificate,
if
mutilated, the Company will make and deliver a new Warrant or stock
certificate
of like tenor and dated as of such cancellation, in lieu of such
Warrant or
stock certificate.
c) Saturdays,
Sundays, Holidays, etc.
If the
last or appointed day for the taking of any action or the expiration
of any
right required or granted herein shall not be a Business Day, then
such action
may be taken or such right may be exercised on the next succeeding
Business
Day.
d) Authorized
Shares.
The
Company covenants that during the period the Warrant is outstanding,
it will
reserve from its authorized and unissued Common Stock a sufficient
number of
shares to provide for the issuance of the Warrant Shares upon the
exercise of
any purchase rights under this Warrant. The Company further covenants
that its
issuance of this Warrant shall constitute full authority to its officers
who are
charged with the duty of executing stock certificates to execute
and issue the
necessary certificates for the Warrant Shares upon the exercise of
the purchase
rights under this Warrant. The Company will take all such reasonable
action as
may be necessary to assure that such Warrant Shares may be issued
as provided
herein without violation of any applicable law or regulation, or
of any
requirements of the Trading Market upon which the Common Stock may
be listed.
Except
and to the extent as waived or consented to by the Holder, the Company
shall not
by any action, including, without limitation, amending its certificate
of
incorporation or through any reorganization, transfer of assets,
consolidation,
merger, dissolution, issue or sale of securities or any other voluntary
action,
avoid or seek to avoid the observance or performance of any of the
terms of this
Warrant, but will at all times in good faith assist in the carrying
out of all
such terms and in the taking of all such actions as may be necessary
or
appropriate to protect the rights of Holder as set forth in this
Warrant against
impairment. Without limiting the generality of the foregoing, the
Company will
(a) not increase the par value of any Warrant Shares above the amount
payable
therefor upon such exercise immediately prior to such increase in
par value, (b)
take all such action as may be necessary or appropriate in order
that the
Company may validly and legally issue fully paid and nonassessable
Warrant
Shares upon the exercise of this Warrant, and (c) use commercially
reasonable
efforts to obtain all such authorizations, exemptions or consents
from any
public regulatory body having jurisdiction thereof as may be necessary
to enable
the Company to perform its obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number
of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price,
the
Company shall obtain all such authorizations or exemptions thereof,
or consents
thereto, as may be necessary from any public regulatory body or bodies
having
jurisdiction thereof.
e) Jurisdiction.
All
questions concerning the construction, validity, enforcement and
interpretation
of this Warrant shall be determined in accordance with the provisions
of the
Purchase Agreement.
f) Restrictions.
The
Holder acknowledges that the Warrant Shares acquired upon the exercise
of this
Warrant, if not registered, will have restrictions upon resale imposed
by state
and federal securities laws.
g) Nonwaiver
and Expenses.
No
course of dealing or any delay or failure to exercise any right hereunder
on the
part of Holder shall operate as a waiver of such right or otherwise
prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully
and
knowingly fails to comply with any provision of this Warrant, which
results in
any material damages to the Holder, the Company shall pay to Holder
such amounts
as shall be sufficient to cover any costs and expenses including,
but not
limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or
in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices.
Any
notice, request or other document required or permitted to be given
or delivered
to the Holder by the Company shall be delivered in accordance with
the notice
provisions of the Purchase Agreement.
i) Limitation
of Liability.
No
provision hereof, in the absence of any affirmative action by Holder
to exercise
this Warrant to purchase Warrant Shares, and no enumeration herein
of the rights
or privileges of Holder, shall give rise to any liability of Holder
for the
purchase price of any Common Stock or as a stockholder of the Company,
whether
such liability is asserted by the Company or by creditors of the
Company.
j) Remedies.
Holder,
in addition to being entitled to exercise all rights granted by law,
including
recovery of damages, will be entitled to specific performance of
its rights
under this Warrant. The Company agrees that monetary damages would
not be
adequate compensation for any loss incurred by reason of a breach
by it of the
provisions of this Warrant and hereby agrees to waive and not to
assert the
defense in any action for specific performance that a remedy at law
would be
adequate.
k) Successors
and Assigns.
Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon
the
successors of the Company and the successors and permitted assigns
of Holder.
The provisions of this Warrant are intended to be for the benefit
of all Holders
from time to time of this Warrant and shall be enforceable by any
such Holder or
holder of Warrant Shares.
l) Amendment.
This
Warrant may be modified or amended or the provisions hereof waived
with the
written consent of the Company and the Holder.
m) Severability.
Wherever possible, each provision of this Warrant shall be interpreted
in such
manner as to be effective and valid under applicable law, but if
any provision
of this Warrant shall be prohibited by or invalid under applicable
law, such
provision shall be ineffective to the extent of such prohibition
or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
n) Headings.
The
headings used in this Warrant are for the convenience of reference
only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its
officer thereunto duly authorized as of the date first above
indicated.
OXIS
INTERNATIONAL, INC.
|
By:__________________________________________
Name:
Title:
|
NOTICE
OF EXERCISE
TO: OXIS
INTERNATIONAL, INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of
the Company
pursuant to the terms of the attached Warrant (only if exercised
in full), and
tenders herewith payment of the exercise price in full, together
with all
applicable transfer taxes, if any.
(2) Payment
shall take the form of (check applicable box):
[
] in
lawful money of the United States; or
[
] [if
permitted] the cancellation of such number of Warrant Shares as is
necessary, in
accordance with the formula set forth in subsection 2(c), to exercise
this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares
in the name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number
or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4)
Accredited
Investor.
The
undersigned is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act of 1933, as amended.
[SIGNATURE
OF HOLDER]
Name
of
Investing Entity:
________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity:
_________________________________________________
Name
of
Authorized Signatory:
___________________________________________________________________
Title
of
Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this
form
and supply required information.
Do
not
use this form to exercise the warrant.)
FOR
VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant
and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE:
The
signature to this Assignment Form must correspond with the name as
it appears on
the face of the Warrant, without alteration or enlargement or any
change
whatsoever, and must be guaranteed by a bank or trust company. Officers
of
corporations and those acting in a fiduciary or other representative
capacity
should file proper evidence of authority to assign the foregoing
Warrant.
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “Agreement”)
is
made and entered into as of October 25, 2006, among Oxis International, Inc.,
a
Delaware corporation (the “Company”)
and
the several purchasers signatory hereto (each such purchaser, a “Purchaser”
and,
collectively, the “Purchasers”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the
date hereof, between the Company and each Purchaser (the “Purchase
Agreement”).
The
Company and each Purchaser hereby agrees as follows:
1. Definitions
Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
As used
in this Agreement, the following terms shall have the following
meanings:
“Advice”
shall
have the meaning set forth in Section 6(d).
“Effectiveness
Date”
means,
with respect to the initial Registration Statement required to be filed
hereunder, the 120th
calendar
day following the date hereof and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 120th
calendar
day following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required hereunder;
provided,
however,
that in
the event the Company is notified by the Commission that one of the above
Registration Statements will not be reviewed or is no longer subject to further
review and comments, the Effectiveness Date as to such Registration Statement
shall be the fifth Trading Day following the date on which the Company is so
notified if such date precedes the dates required above.
“Effectiveness
Period”
shall
have the meaning set forth in Section 2(a).
“Event”
shall
have the meaning set forth in Section 2(b).
“Event
Date”
shall
have the meaning set forth in Section 2(b).
“Filing
Date”
means,
with respect to the initial Registration Statement required hereunder, the
45th
calendar
day following the date hereof and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 30th
calendar
day following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required
hereunder.
“Holder”
or
“Holders”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
“Indemnified
Party”
shall
have the meaning set forth in Section 5(c).
“Indemnifying
Party”
shall
have the meaning set forth in Section 5(c).
“Losses”
shall
have the meaning set forth in Section 5(a).
“Plan
of Distribution”
shall
have the meaning set forth in Section 2(a).
“Prospectus”
means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“Registrable
Securities”
means
(i) all of the shares of Common Stock issuable upon conversion in full of the
Debentures, (ii) all shares of Common Stock issuable as principal on the
Debentures assuming all permissible principal payments are made in shares of
Common Stock and the Debentures are held until maturity, (iii) all Warrant
Shares, (iv) any additional shares of Common Stock issuable in connection with
any anti-dilution provisions in the Debentures or the Warrants (in each case,
without giving effect to any limitations on conversion set forth in the
Debenture or limitations on exercise set forth in the Warrant) and (v) any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.
“Registration
Statement”
means
the registration statements required to be filed hereunder and any additional
registration statements contemplated by Section 3(c), including (in each case)
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
“Rule
415”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.
“Rule
424”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.
“Selling
Shareholder Questionnaire”
shall
have the meaning set forth in Section 3(a).
2. Shelf
Registration
(a) On
or
prior to each Filing Date, the Company shall prepare and file with the
Commission a “Shelf” Registration Statement covering the resale of 150% of the
Registrable Securities on such Filing Date for an offering to be made on a
continuous basis pursuant to Rule 415; provided,
however,
that if
150% of the Registrable Securities hereunder shall equal or exceed 46% of the
issued and outstanding Common Stock of the Company on the actual filing date
of
the initial Registration Statement, the initial Registration Statement shall
register a number of shares of Common Stock which is equal to 46% of the issued
and outstanding shares of Common Stock of the Company on such actual filing
date
minus 10,000 shares of Common Stock, and the remaining Registrable Securities
shall be subject to Section 3(c). In such event, the number of Registrable
Securities to be registered for each Holder shall be reduced pro-rata among
all
Holders and each Holder shall have the right to designate which of its
Registrable Securities shall be omitted from the initial Registration Statement.
In addition, any Registrable Securities that are not included on the initial
Registration Statement due to the preceding two sentences shall not be deemed
“Registrable Securities” for purposes of Section 2(b) hereunder until the
initial Registration Statement filed hereunder has been declared effective
by
the Commission. The Registration Statement shall be on Form S-3 (except if
the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith) and shall contain (unless otherwise directed by
at
least an 85% majority in interest of the Holders) substantially the
“Plan
of Distribution”
attached hereto as Annex
A.
Subject
to the terms of this Agreement, the Company shall use its best efforts to cause
a Registration Statement to be declared effective under the Securities Act
as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until
all
Registrable Securities covered by such Registration Statement have been sold,
or
may be sold without volume restrictions pursuant to Rule 144(k), as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company’s transfer agent and the
affected Holders (the “Effectiveness
Period”).
The
Company shall telephonically request effectiveness of a Registration Statement
as of 5:00 p.m. New York City time on a Trading Day. The Company shall
immediately notify the Holders via facsimile of the effectiveness of a
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of a Registration Statement. The Company shall, by 9:30 a.m.
New York City time on the Trading Day after the Effective Date (as defined
in
the Purchase Agreement), file a final Prospectus with the Commission as required
by Rule 424. Failure to so notify the Holder within 1 Trading Day of such
notification
of effectiveness or failure to file a final Prospectus as foresaid shall be
deemed an Event under Section 2(b).
(b) If:
(i) a
Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a)
herein, the Company shall not be deemed to have satisfied this clause (i)),
or
(ii) the Company fails to file with the Commission a request for acceleration
in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will
not
be “reviewed,” or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect
of
such Registration Statement within 10 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, or (iv) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission by its Effectiveness Date, or (v) after the
Effectiveness Date, a Registration Statement ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is required
to be effective, or the Holders are otherwise not permitted to utilize the
Prospectus therein to resell such Registrable Securities for more than 10
consecutive calendar days or more than an aggregate of 15 calendar days during
any 12-month period (which need not be consecutive calendar days) (any such
failure or breach being referred to as an “Event”,
and
for purposes of clause (i) or (iv) the date on which such Event occurs, or
for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 10 calendar day
period is exceeded, or for purposes of clause (v) the date on which such 10
or
15 calendar day period, as applicable, is exceeded being referred to as
“Event
Date”),
then
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of
each
such Event Date (if the applicable Event shall not have been cured by such
date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as partial liquidated damages and not as a penalty, equal to
2.0% of the aggregate purchase price paid by such Holder pursuant to the
Purchase Agreement for any Registrable Securities then held by such Holder.
The
parties agree that (1) the Company will not be liable for liquidated damages
under this Agreement with respect to any Warrants or Warrant Shares, (2) in
no
event will the Company be liable for liquidated damages under this Agreement
in
excess of 2.0% of the aggregate Subscription Amount of the Holders in any 30-day
period and (3) the maximum aggregate liquidated damages payable to a Holder
under this Agreement shall be 36% of the aggregate Subscription Amount paid
by
such Holder pursuant to the Purchase Agreement. If the Company fails to pay
any
partial liquidated damages pursuant to this Section in full within seven days
after the date payable, the Company will pay interest thereon at a rate of
18%
per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The partial liquidated damages
pursuant
to the terms hereof shall apply on a daily pro-rata basis for any portion of
a
month prior to the cure of an Event.
3. Registration
Procedures.
In
connection
with the Company’s registration obligations hereunder, the Company
shall:
(a) Not
less
than five Trading Days prior to the filing of each Registration Statement and
not less than one Trading Day prior to the filing of any related Prospectus
or
any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to each Holder copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to each Holder, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that the Company
is
notified of such objection in writing no later than 5 Trading Days after the
Holders have been so furnished copies of a Registration Statement or 1 Trading
Day after the Holders have been so furnished copies of any related Prospectus
or
amendments or supplements thereto. Each Holder agrees to furnish to the Company
a completed questionnaire in the form attached to this Agreement as Annex
B
(a
“Selling
Shareholder Questionnaire”)
not
less than two Trading Days prior to the Filing Date or by the end of the fourth
Trading Day following the date on which such Holder receives draft materials
in
accordance with this Section.
(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of
the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of
this
Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any amendment
thereto and provide as promptly as reasonably possible to the Holders true
and
complete copies of all correspondence from and to the Commission relating to
a
Registration Statement (provided that the Company may excise any information
contained therein which would constitute material non-public information as
to
any Holder which has not executed a confidentiality agreement with the Company);
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a
Registration
Statement during the applicable period in accordance (subject to the terms
of
this Agreement) with the intended methods of disposition by the Holders thereof
set forth in such Registration Statement as so amended or in such Prospectus
as
so supplemented.
(c) If
during
the Effectiveness Period and following the effective date of the Registration
Statement described in the second sentence of this Section 3(c), the number
of
Registrable Securities at any time exceeds 50% of the number of shares of Common
Stock then registered in a Registration Statement(s), then the Company shall
file as soon as reasonably practicable, but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the resale by the
Holders of not less than 150% of the number of such Registrable Securities.
In
addition, in the event that 150% of the Registrable Securities are not included
in the initial Registration Statement as contemplated by the proviso regarding
Registrable Securities in Section 2(a) above, then, upon the written request
of
Holders holding at least 51% of the then outstanding Registrable Securities,
the
Company shall file as soon as reasonably practicable, but in no event later
than
the applicable Filing Date, an additional Registration Statement covering the
resale by the Holders of not less than the difference between 150% of the
Registrable Securities and the number of Registrable Securities in the initial
Registration Statement.
(d) Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (iii) through (vi) hereof, be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made)
as
promptly as reasonably possible (and, in the case of (i)(A) below, not less
than
one Trading Day prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following the
day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement; and (C) with respect to a Registration Statement or
any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or
for
additional information; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of
the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any
Proceeding for such purpose; (v) of the occurrence of any event or passage
of
time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in a Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus,
as
the case may be, it will not contain any untrue statement of a material fact
or
omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under
which
they were made, not misleading; and (vi) the occurrence or existence of any
pending corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company, makes
it
not in the best interest of the Company to allow continued availability of
a
Registration Statement or Prospectus; provided that any and all of such
information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided,
further,
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.
(e) Use
its
best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of
(i) any order suspending the effectiveness of a Registration Statement, or
(ii)
any suspension of the qualification (or exemption from qualification) of any
of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f) Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(g) Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except
after
the giving of any notice pursuant to Section 3(d).
(h) If
NASDR
Rule 2710 requires any broker-dealer to make a filing prior to executing a
sale
by a Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
Corporate Financing Department pursuant to proposed NASDR Rule
2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments
received from NASDR in connection therewith, (iii) and pay the filing fee
required in connection therewith.
(i) Prior
to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale
by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax
in
any such
jurisdiction
where it is not then so subject or file a general consent to service of process
in any such jurisdiction.
(j) If
requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be
in
such denominations and registered in such names as any such Holders may
request.
(k) Upon
the
occurrence of any event contemplated by this Section 3, as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement
or
amendment, including a post-effective amendment, to a Registration Statement
or
a supplement to the related Prospectus or any document incorporated or deemed
to
be incorporated therein by reference, and file any other required document
so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If
the
Company notifies the Holders in accordance with clauses (iii) through (vi)
of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend use
of
such Prospectus. The Company will use its best efforts to ensure that the use
of
the Prospectus may be resumed as promptly as is practicable. The Company shall
be entitled to exercise its right under this Section 3(k) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 calendar days (which need not be consecutive days) in any 12 month
period.
(l) Comply
with all applicable rules and regulations of the Commission.
(m) The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by
such
Holder and, if required by the Commission, the natural persons thereof that
have
voting and dispositive control over the Shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails
to
furnish such information within three Trading Days of the Company’s request, any
liquidated damages that are accruing at such time as to such Holder only shall
be tolled and any Event that may otherwise occur solely because of such delay
shall be suspended as to such Holder only, until such information is delivered
to the Company.
4. Registration
Expenses.
All
fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees
and expenses
referred
to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with any Trading Market on
which
the Common Stock is then listed for trading, (B) in compliance with applicable
state securities or Blue Sky laws reasonably agreed to by the Company in writing
(including, without limitation, fees and disbursements of counsel for the
Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities) and (C) if not previously paid by the Company in
connection with an Issuer Filing, with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule
2710, so long as the broker is receiving no more than a customary brokerage
commission in connection with such sale, (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of
the
Registrable Securities on any securities exchange as required hereunder. In
no
event shall the Company be responsible for any broker or similar commissions
of
any Holder or, except to the extent provided for in the Transaction Documents,
any legal fees or other costs of the Holders.
5. Indemnification
(a) Indemnification
by the Company.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, members, partners, agents,
brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin
call
of Common Stock), investment advisors and employees (and any other Persons
with
a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act) and the officers, directors, members,
shareholders, partners, agents and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles, notwithstanding
a
lack of such title or any other title) of each such controlling Person, to
the
fullest extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses (collectively, “Losses”),
as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
form
of prospectus or supplement thereto, in light of the circumstances under which
they were
made)
not
misleading or (2) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its obligations
under this Agreement, except to the extent, but only to the extent, that (i)
such untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for
use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use
in a
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
of an event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior
to
the receipt by such Holder of the Advice contemplated in Section 6(d). The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.
(b) Indemnification
by Holders.
Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, agents or employees of
such controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue or alleged untrue statement
of a material fact contained in any Registration Statement, any Prospectus,
or
any form of prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading (i) to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
in
such Registration Statement or such Prospectus or (ii) to the extent that such
information relates to such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in a Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such Prospectus
or such form of Prospectus or in any amendment or supplement thereto or (ii)
in
the case of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving
rise
to such indemnification obligation.
(c) Conduct
of Indemnification Proceedings.
If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified
Party”),
such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying
Party”)
in
writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to
the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist
if
the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of no more than one
separate counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in
a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined to be not entitled to indemnification hereunder.
(d) Contribution.
If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses,
then
each Indemnifying Party shall contribute to the amount paid or
payable
by such Indemnified Party, in such proportion as is appropriate to reflect
the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
of a
material fact, has been taken or made by, or relates to information supplied
by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its
terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by
any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which
the
net proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that
such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
6.
Miscellaneous
(a) Remedies.
In the
event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation
for
any losses incurred by reason of a breach by it of any of the provisions of
this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate.
(b) No
Piggyback on Registrations.
Except
as set forth on Schedule
6(b)
attached
hereto, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in the Registration Statements other than the Registrable Securities. The
Company shall not file any other registration
statements
until all Registrable Securities are registered pursuant to a Registration
Statement that is declared effective by the Commission, provided that this
Section 6(b) shall not prohibit the Company from filing amendments to
registration statements filed prior to the date of this Agreement.
(c) Compliance.
Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.
(d) Discontinued
Disposition.
By its
acquisition of Registrable Securities, each Holder agrees that, upon receipt
of
a notice from the Company of the occurrence of any event of the kind described
in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement until
it is advised in writing (the “Advice”)
by the
Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. The Company will use its best efforts
to ensure that the use of the Prospectus may be resumed as promptly as it
practicable. The Company agrees and acknowledges that any periods during which
the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section
2(b).
(e) Piggy-Back
Registrations.
If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities 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 stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such determination and,
if
within fifteen days after the date of such notice, any such Holder shall so
request in writing, the Company shall include in such registration statement
all
or any part of such Registrable Securities such Holder requests to be
registered; provided,
however,
that
the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a then
effective Registration Statement.
(f) Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and each Holder of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to
the
rights of Holders and that does not directly or indirectly affect the rights
of
other Holders may be given by Holders of all of the Registrable Securities
to
which such waiver or consent relates; provided,
however,
that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(g) Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be delivered as set forth in the Purchase Agreement.
(h) Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit of
each
Holder. The Company may not assign (except by merger) its rights or obligations
hereunder without the prior written consent of all of the Holders of the
then-outstanding Registrable Securities. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) No
Inconsistent Agreements.
Neither
the Company nor any of its Subsidiaries has entered, as of the date hereof,
nor
shall the Company or any of its Subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities, that would
have the effect of impairing the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. Except as set forth on
Schedule
6(i),
neither
the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which when taken
together 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, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
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
facsimile or “.pdf” signature page were an original thereof.
(k) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of
the
Purchase Agreement.
(l) Cumulative
Remedies.
The
remedies provided herein are cumulative and not exclusive of any other remedies
provided by law.
(m) Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings.
The
headings in this Agreement are for convenience only, do not constitute a part
of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(o) Independent
Nature of Holders’ Obligations and Rights.
The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible
in
any way for the performance of the obligations of any other Holder hereunder.
Nothing contained herein or in any other agreement or document delivered at
any
closing, and no action taken by any Holder pursuant hereto or thereto, shall
be
deemed to constitute the Holders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Holders
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled
to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Holder to
be
joined as an additional party in any proceeding for such purpose.
********************
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as
of the date first written above.
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OXIS
INTERNATIONAL, INC> |
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By: |
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Name: |
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Title: |
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[SIGNATURE
PAGE OF HOLDERS TO OXIS RRA]
Name
of
Holder: __________________________
Signature
of Authorized Signatory of Holder:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
[SIGNATURE
PAGES CONTINUE]
Annex
A
Plan
of Distribution
Each
Selling Stockholder (the “Selling
Stockholders”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on
the
OTC Bulletin Board or any other stock exchange, market or trading facility
on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. A Selling Stockholder may use any one or more of
the
following methods when selling shares:
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
· |
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;
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
· |
privately
negotiated transactions;
|
· |
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
· |
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
· |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
· |
a
combination of any such methods of sale;
or
|
· |
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities
Act”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage
commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction
a
markup or markdown in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In
no
event shall any broker-dealer receive fees, commissions and markups which,
in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
Annex
B
OXIS
INTERNATIONAL, INC.
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock (the “Registrable
Securities”)
of
Oxis International, Inc., a Delaware corporation (the “Company”),
(the
“Registrable
Securities”)
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”)
a
registration statement (the “Registration
Statement”)
for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities
Act”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement (the “Registration
Rights Agreement”)
to
which this document is annexed. A copy of the Registration Rights Agreement
is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain
legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “Selling
Securityholder”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it in the Registration Statement.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
|
(a)
|
Full
Legal Name of Selling
Securityholder
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are
held:
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural person
who
directly or indirectly alone or with others has power to vote or
dispose
of the securities covered by the
questionnaire):
|
2.
Address for Notices to Selling Securityholder:
|
|
|
Telephone:
|
Fax:
|
Contact
Person:
|
3.
Broker-Dealer Status:
|
(a)
|
Are
you a broker-dealer?
|
Yes
o No
o
|
(b)
|
If
“yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the
Company.
|
Yes
o No
o
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes
o No
o
|
(d)
|
If
you are an affiliate of a broker-dealer, do you certify that you
bought
the Registrable Securities in the ordinary course of business, and
at the
time of the purchase of the Registrable Securities to be resold,
you had
no agreements or understandings, directly or indirectly, with any
person
to distribute the Registrable
Securities?
|
Yes
o No
o
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
4.
Beneficial Ownership of Securities of the Company Owned by the Selling
Securityholder.
Except
as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.
|
(a)
|
Type
and Amount of other securities beneficially owned by the Selling
Securityholder:
|
5.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State
any
exceptions here:
The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus
and
any
amendments or supplements thereto.
The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
Dated: Beneficial
Owner:
By:
Name:
Title:
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
24
Exhibit
10.5
EXHIBIT
E
SECURITY
AGREEMENT
This
SECURITY AGREEMENT, dated as of October 25, 2006 (this “Agreement”),
is
among Oxis International, Inc., a Delaware corporation
(the
“Company”),
the
Subsidiaries of the Company
signatory hereto (such subsidiaries,
the
“Guarantors”
and
together with the Company,
the
“Debtors”)
and
the holders of the Company’s Original Issue Discount Secured Convertible
Debentures due October 25, 2008 and issued on October 25, 2006 in the original
aggregate principal amount of $[_____ (collectively, the “Debentures”)
signatory hereto, their endorsees, transferees and assigns (collectively, the
“Secured
Parties”).
W
I T N E S S E T H:
WHEREAS,
pursuant to the Debentures, the Secured Parties have severally agreed to extend
the loans to the Company evidenced by the Debentures;
WHEREAS,
pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the
“Guarantee”),
the
Guarantors
have
jointly and severally agreed to guarantee and act as surety for payment of
such
Debentures; and
WHEREAS,
in order to induce the Secured Parties to extend the loans evidenced by the
Debentures, each Debtor has agreed to execute and deliver to the Secured Parties
this Agreement and to grant the Secured Parties, pari passu
with
each other Secured Party and through the Agent, a security interest in certain
property of such Debtor to secure the prompt payment, performance and discharge
in full of all of the Company’s obligations under the Debentures and the
Guarantors’ obligations under the Guarantee.
NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Certain
Definitions.
As used
in this Agreement, the following terms shall have the meanings set forth in
this
Section 1. Terms used but not otherwise defined in this Agreement that are
defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial
tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general
intangibles”, “goods”, “instruments”, “inventory”, “investment property”,
“letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have
the respective meanings given such terms in Article 9 of the UCC.
(a) “Collateral”
means
the collateral in which the Secured Parties are granted a security interest
by
this Agreement and which shall include the following personal property of the
Debtors, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto
and
all substitutions and replacements thereof, and all proceeds, products and
accounts thereof, including, without limitation, all proceeds from the sale
or
transfer of the Collateral and
of
insurance covering the same and of any tort claims in connection
therewith,
and all
dividends, interest, cash, notes, securities, equity interest or other property
at any time and from time to time acquired, receivable or otherwise distributed
in respect of, or in exchange for, any or all of the Pledged Securities (as
defined below):
(i) All
goods, including, without limitation, (A) all machinery, equipment, computers,
motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special
and
general tools, fixtures, test and quality control devices and other equipment
of
every kind and nature and wherever situated, together with all documents of
title and documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any of the
foregoing and all other items used and useful in connection with any Debtor’s
businesses and all improvements thereto; and (B) all inventory;
(ii) All
contract rights and other general intangibles, including, without limitation,
all partnership interests, membership interests, stock or other securities,
rights
under any of the Organizational Documents, agreements related to the Pledged
Securities, licenses,
distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, and income tax
refunds;
(iii) All
accounts, together with all instruments, all documents of title representing
any
of the foregoing, all rights in any merchandising, goods, equipment, motor
vehicles and trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including any right of
stoppage in transit;
(iv) All
documents, letter-of-credit rights, instruments and chattel paper;
(v) All
commercial tort claims;
(vi) All
deposit accounts and all cash (whether or not deposited in such deposit
accounts);
(vii) All
investment property;
(viii) All
supporting obligations; and
(ix) All
files, records, books of account, business papers, and computer programs;
and
(x) the
products and proceeds of all of the foregoing Collateral set forth in clauses
(i)-(ix) above.
Without
limiting the generality of the foregoing, the “Collateral”
shall
include all investment property and general intangibles respecting ownership
and/or other equity interests in each Guarantor and other Subsidiaries,
including, without limitation, the shares of capital stock and the other equity
interests listed on Schedule
H
hereto
(as the same may be modified from time to time pursuant to the terms hereof),
and any other shares of capital stock and/or other equity interests of any
other
direct or indirect subsidiary of any Debtor obtained in the future, and, in
each
case, all certificates representing such shares and/or equity interests and,
in
each case, all rights, options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or distributed in respect
of, or exchanged for, any of the foregoing and all rights arising under or
in
connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.
Notwithstanding the foregoing, to the extent prohibited pursuant to the terms
of
the loan agreement entered into with Bridge Bank on December 6, 2005, and
related note, “Collateral” shall not include that certain certificate of deposit
of the Company in the original amount of $3,000,000, issued by Key Bank, that
the Company granted a security interest in to Bridge Bank in connection with
such loan.
Notwithstanding
the foregoing, nothing herein shall be deemed to constitute an assignment of
any
asset which, in the event of an assignment, becomes void by operation of
applicable law or the assignment of which is otherwise prohibited by applicable
law (in each case to the extent that such applicable law is not overridden
by
Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law);
provided, however, that to the extent permitted by applicable law, this
Agreement shall create a valid security interest in such asset and, to the
extent permitted by applicable law, this Agreement shall create a valid security
interest in the proceeds of such asset.
(b) “Intellectual
Property”
means
the collective reference to all rights, priorities and privileges relating
to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published
or
unpublished, all registrations and recordings thereof, and all applications
in
connection therewith, including, without limitation, all registrations,
recordings and applications in the United States Copyright Office, (ii) all
letters patent of the United States, any other country or any political
subdivision thereof, all reissues and extensions thereof, and all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade dress, service marks, logos, domain names and other source or
business identifiers, and all goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
or
otherwise, and all common law rights related thereto, (iv) all trade secrets
arising under the laws of the United States, any other country or any political
subdivision thereof, (v) all rights to obtain any reissues, renewals or
extensions of the foregoing, (vi) all licenses for any of the foregoing, and
(vii) all causes of action for infringement of the foregoing.
(c) “Majority
in Interest”
means,
at any time of determination, the majority in interest (based on
then-outstanding principal amounts of Debentures at the time of such
determination) of the Secured Parties.
(d) “Necessary
Endorsement”
means
undated stock powers endorsed in blank or other proper instruments of assignment
duly executed and such other instruments or documents as the Agent (as that
term
is defined below) may reasonably request.
(e) “Obligations”
means
all of the liabilities
and obligations (primary, secondary, direct, contingent, sole, joint or several)
due or to become due, or that are now or may be hereafter contracted or
acquired, or owing to, of any Debtor to the Secured Parties, including, without
limitation, all
obligations under this Agreement, the Debentures, the Guarantee and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that
are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Parties as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without
limiting the generality of the foregoing, the term “Obligations” shall include,
without limitation: (i) principal of, and interest on the Debentures and the
loans extended pursuant thereto; (ii) any and all other fees, indemnities,
costs, obligations and liabilities of the Debtors from time to time under or
in
connection with this Agreement, the Debentures, the Guarantee and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith; and (iii) all amounts (including but not
limited to post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.
(f) “Organizational
Documents”
means
with respect to any Debtor, the documents by which such Debtor was organized
(such as a certificate of incorporation, certificate of limited partnership
or
articles of organization, and including, without limitation, any certificates
of
designation for preferred stock or other forms of preferred equity) and which
relate to the internal governance of such Debtor (such as bylaws, a partnership
agreement or an operating, limited liability or members
agreement).
(g) “Pledged
Securities”
shall
have the meaning ascribed to such term in Section 4(i).
(h) “UCC”
means
the Uniform Commercial Code of the State of New York and or any other applicable
law of any state or states which has jurisdiction with respect to all, or any
portion of, the Collateral or this Agreement, from time to time. It is the
intent of the parties that defined terms in the UCC should be construed in
their
broadest sense so that the term “Collateral” will be construed in its broadest
sense. Accordingly if there are, from time to time, changes to defined terms
in
the UCC that broaden the definitions, they are incorporated herein and if
existing definitions in the UCC are broader than the amended definitions, the
existing ones shall be controlling.
2. Grant
of Security Interest in Collateral.
As an
inducement for the Secured Parties to extend the loans as evidenced by the
Debentures and to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations, each Debtor
hereby unconditionally and irrevocably pledges, grants and hypothecates to
the
Secured Parties a security interest in and to, a lien upon and a right of
set-off against all of their respective right, title and interest of whatsoever
kind and nature in and to, the Collateral (a “Security
Interest”
and
collectively, the “Security
Interests”).
3. Delivery
of Certain Collateral.
Contemporaneously or prior to the execution of this Agreement, each Debtor
shall
deliver or cause to be delivered to the Agent (a) any and all certificates
and
other instruments representing or evidencing the Pledged Securities, and (b)
any
and all certificates and other instruments or documents representing any of
the
other Collateral, in each case, together with all Necessary Endorsements. The
Debtors are, contemporaneously with the execution hereof, delivering to Agent,
or have previously delivered to Agent, a true and correct copy of each
Organizational Document governing any of the Pledged Securities.
4. Representations,
Warranties, Covenants and Agreements of the Debtors.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Secured Parties concurrently herewith (the “Disclosure
Schedules”),
which
Disclosure Schedules shall be deemed a part hereof, each Debtor represents
and
warrants to, and covenants and agrees with, the Secured Parties as
follows:
(a) Each
Debtor has the requisite corporate, partnership, limited liability company
or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder. The execution, delivery and performance by each
Debtor of this Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and no further
action is required by such Debtor. This Agreement has been duly executed by
each
Debtor. This Agreement constitutes the legal, valid and binding obligation
of
each Debtor, enforceable against each Debtor in accordance with its terms except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and similar laws of general application relating to or affecting
the rights and remedies of creditors and by general principles of
equity.
(b) The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule
A
attached
hereto. Except as specifically set forth on Schedule
A,
each
Debtor is the record owner of the real property where such Collateral is
located, and there exist no mortgages or other liens on any such real property
except for Permitted Liens (as defined in the Debentures). Except as disclosed
on Schedule
A,
none of
such Collateral is in the possession of any consignee, bailee, warehouseman,
agent or processor.
(c) Except
for Permitted Liens (as defined in the Debentures) and except as set forth
on
Schedule
B
attached
hereto, the Debtors are the sole owner of the Collateral (except for
non-exclusive licenses granted by any Debtor in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims, and are fully authorized to grant the Security Interests. Except
as
set forth on Schedule
B
attached
hereto, there is not on file in any governmental or regulatory authority, agency
or recording office an effective financing statement, security agreement,
license or transfer or any notice of any of the foregoing (other than those
that
will be filed in favor of the Secured Parties pursuant to this Agreement)
covering or affecting any of the Collateral. Except as set forth on Schedule
B
attached hereto and except pursuant to this Agreement, as long as this Agreement
shall be in effect, the Debtors shall not execute and shall not knowingly permit
to be on file in any such office or agency any other financing statement or
other document or instrument (except to the extent filed or recorded in favor
of
the Secured Parties pursuant to the terms of this Agreement).
(d) No
written claim has been received that any Collateral or Debtor's use of any
Collateral violates the rights of any third party. There has been no adverse
decision to any Debtor's claim of ownership rights in or exclusive rights to
use
the Collateral in any jurisdiction or to any Debtor's right to keep and maintain
such Collateral in full force and effect, and there is no proceeding involving
said rights pending or, to the best knowledge of any Debtor, threatened before
any court, judicial body, administrative or regulatory agency, arbitrator or
other governmental authority.
(e) Each
Debtor shall at all times maintain its books of account and records relating
to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule
A
attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least 30 days prior
to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Parties a valid, perfected
and continuing perfected first priority lien in the Collateral.
(f) This
Agreement creates in favor of the Secured Parties a valid, security interest
in
the Collateral, subject only to Permitted Liens (as defined in the Debentures)
securing the payment and performance of the Obligations. Upon making the filings
described
in the immediately following paragraph, all security interests created hereunder
in any Collateral which may be perfected by filing Uniform Commercial Code
financing statements shall have been duly perfected. Except for the filing
of
the Uniform Commercial Code financing statements referred to in the immediately
following paragraph, the recordation of the Intellectual Property Security
Agreement (as defined below) with respect to copyrights and copyright
applications in the United States Copyright Office referred to in paragraph
(m),
the
execution and delivery of deposit account control agreements satisfying the
requirements of Section 9-104(a)(2) of the UCC with respect to each deposit
account of the Debtors,
and the
delivery of the certificates and other instruments provided in Section
3,
no
action is necessary to create, perfect or protect the security interests created
hereunder. Without limiting the generality of the foregoing, except for the
filing of said financing statements, the recordation of said Intellectual
Property Security Agreement, and the execution and delivery of said deposit
account control agreements, no consent of any third parties and no
authorization, approval or other action by, and no notice to or filing with,
any
governmental authority or regulatory body is required for (i) the execution,
delivery and performance of this Agreement, (ii) the creation or perfection
of
the Security Interests created hereunder in the Collateral or (iii) the
enforcement of the rights of the Agent and the Secured Parties
hereunder.
(g) Each
Debtor hereby authorizes the Agent to file one or more financing statements
under the UCC, with respect to the Security Interests with the proper filing
and
recording agencies in any jurisdiction deemed proper by it.
(h) The
execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor
or any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor
or
(ii) conflict with, or constitute a default (or an event that 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 (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other
instrument (evidencing any Debtor's debt or otherwise) or other understanding
to
which any Debtor is a party or by which any property or asset of any Debtor
is
bound or affected. If any, all required consents (including, without limitation,
from stockholders or creditors of any Debtor) necessary for any Debtor to enter
into and perform its obligations hereunder have been obtained.
(i) The
capital stock and other equity interests listed on Schedule
H
hereto
(the “Pledged
Securities”)
represent all of the capital stock and other equity interests of the Guarantors
and other Subsidiaries, and represent all capital stock and other equity
interests owned, directly or indirectly, by the Company. All of the Pledged
Securities are validly issued, fully paid and nonassessable, and the Company
is
the legal and beneficial owner of the Pledged Securities, free and clear of
any
lien, security interest or other encumbrance except for the security interests
created by this Agreement and other Permitted Liens (as defined in the
Debentures).
(j) The
ownership and other equity interests in partnerships and limited liability
companies (if any)
included
in the Collateral
(the
“Pledged
Interests”)
by
their express terms do not provide that they are securities governed by Article
8 of the UCC and are not held in a securities account or by any financial
intermediary.
(k) Except
for Permitted Liens (as defined in the Debentures), each Debtor shall at all
times maintain the liens and Security Interests provided for hereunder as valid
and perfected first priority liens and security interests in the Collateral
in
favor of the Secured Parties until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 11 hereof. Each Debtor hereby
agrees to defend the same against the claims of any and all persons and
entities. Each Debtor shall safeguard and protect all Collateral for the account
of the Secured Parties. At the request of the Agent, each Debtor will sign
and
deliver to the Agent on behalf of the Secured Parties at any time or from time
to time one or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Agent and will pay the cost of filing the same in all public
offices wherever filing is, or is deemed by the Agent to be, necessary or
desirable to effect the rights and obligations provided for herein. Without
limiting the generality of the foregoing, each Debtor shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the Security
Interests hereunder, and each Debtor shall obtain and furnish to the Agent
from
time to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the Security Interests
hereunder.
(l) No
Debtor
will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose
of any of the Collateral (except for non-exclusive licenses granted by a Debtor
in its ordinary course of business and sales of inventory by a Debtor in its
ordinary course of business) without the prior written consent of a Majority
in Interest.
(m) Each
Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.
(n) Each
Debtor shall maintain with financially sound and reputable insurers, insurance
with respect to the Collateral, including Collateral hereafter acquired, against
loss or damage of the kinds and in the amounts customarily insured against
by
entities of established reputation having similar properties similarly situated
and in such amounts as are customarily carried under similar circumstances
by
other such entities and otherwise as is prudent for entities engaged in similar
businesses but in any event sufficient to cover the full replacement cost
thereof. Each Debtor shall cause each insurance policy issued in connection
herewith to provide, and the insurer issuing such policy to certify to the
Agent
that (a) the Agent will be named as lender loss payee and additional insured
under each such insurance policy; (b) if such insurance be proposed to be
cancelled or materially changed for any reason whatsoever, such insurer will
promptly notify the Agent and such cancellation or change shall not be effective
as to the Agent for at least thirty (30) days after receipt by the Agent of
such
notice, unless the effect of such change
is
to
extend or increase coverage under the policy; and (c) the Agent will have the
right (but no obligation) at its election to remedy any default in the payment
of premiums within thirty (30) days of notice from the insurer of such default.
If no Event of Default (as defined in the Debentures) exists and if the proceeds
arising out of any claim or series of related claims do not exceed $100,000,
loss payments in each instance will be applied by the applicable Debtor to
the
repair and/or replacement of property with respect to which the loss was
incurred to the extent reasonably feasible, and any loss payments or the balance
thereof remaining, to the extent not so applied, shall be payable to the
applicable Debtor, provided, however, that payments received by any Debtor
after
an Event of Default occurs and is continuing or in excess of $100,000 for any
occurrence or series of related occurrences shall be paid to the Agent on behalf
of the Secured Parties and, if received by such Debtor, shall be held in trust
for the Secured Parties and immediately paid over to the Agent unless otherwise
directed in writing by the Agent. Copies of such policies or the related
certificates, in each case, naming the Agent as lender loss payee and additional
insured shall be delivered to the Agent at least annually and at the time any
new policy of insurance is issued.
(o) Each
Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the
Secured Parties promptly, in sufficient detail, of any material adverse change
in the Collateral, and of the occurrence of any event which would have a
material adverse effect on the value of the Collateral or on the Secured
Parties’ security interest, through the Agent, therein.
(p) Each
Debtor shall promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements, financing statements or other
instruments, documents, certificates and assurances and take such further action
as the Agent may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce the Secured Parties’ security interest
in the Collateral including, without limitation, if applicable, the execution
and delivery of a separate security agreement with respect to each Debtor’s
Intellectual Property (“Intellectual
Property Security Agreement”)
in
which the Secured Parties have been granted a security interest hereunder,
substantially in a form reasonably acceptable to the Agent, which Intellectual
Property Security Agreement, other than as stated therein, shall be subject
to
all of the terms and conditions hereof.
(q) Each
Debtor shall permit the Agent and its representatives and agents to inspect
the
Collateral during normal business hours and upon reasonable prior notice, and
to
make copies of records pertaining to the Collateral as may be reasonably
requested by the Agent from time to time.
(r) Each
Debtor shall take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.
(s) Each
Debtor shall promptly notify the Secured Parties in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied
against any Collateral and of any other information received by such Debtor
that
may materially affect the value of the Collateral, the Security Interest or
the
rights and remedies of the Secured Parties hereunder.
(t) All
information heretofore, herein or hereafter supplied to the Secured Parties
by
or on behalf of any Debtor with respect to the Collateral is accurate and
complete in all material respects as of the date furnished.
(u) The
Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to its business.
(v) No
Debtor
will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days prior written notice to the Secured Parties of such change and,
at
the time of such written notification, such Debtor provides any financing
statements or fixture filings necessary to perfect and continue the perfection
of the Security Interests granted and evidenced by this Agreement.
(w) Except
in
the ordinary course of business, no Debtor may consign any of its Inventory
or
sell any of its Inventory on bill and hold, sale or return, sale on approval,
or
other conditional terms of sale without the consent of the
Agent
which shall not be unreasonably withheld.
(x) No
Debtor
may relocate its chief executive office to a new location without providing
30
days prior written notification thereof to the Secured Parties and so long
as,
at the time of such written notification, such Debtor provides any financing
statements or fixture filings necessary to perfect and continue the perfection
of the Security Interests granted and evidenced by this Agreement.
(y) Each
Debtor was organized and remains organized solely under the laws of the state
set forth next to such Debtor’s name in Schedule
D
attached
hereto, which Schedule
D
sets
forth each Debtor’s organizational identification number or, if any Debtor does
not have one, states that one does not exist.
(z) (i)
The
actual name of each Debtor is the name set forth in Schedule
D
attached
hereto; (ii) no Debtor has any trade names except as set forth on Schedule
E
attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule
E
for the
preceding five years; and (iv) no entity has merged into any Debtor or been
acquired by any Debtor within the past five years except as set forth on
Schedule
E.
(aa) At
any
time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by
the
secured
party to perfect the security interest created hereby, the applicable Debtor
shall deliver such Collateral to the Agent.
(bb) Each
Debtor, in its capacity as issuer, hereby agrees to comply with any and all
orders and instructions of Agent regarding the Pledged Interests consistent
with
the terms of this Agreement without the further consent of any Debtor as
contemplated by Section 8-106 (or any successor section) of the UCC. Further,
each Debtor agrees that it shall not enter into a similar agreement (or one
that
would confer “control” within the meaning of Article 8 of the UCC) with any
other person or entity.
(cc) Each
Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Agent, or, if such delivery is not possible, then to cause
such
tangible chattel paper to contain a legend noting that it is subject to the
security interest created by this Agreement. To the extent that any Collateral
consists of electronic chattel paper, the applicable Debtor shall cause the
underlying chattel paper to be “marked” within the meaning of Section 9-105 of
the UCC (or successor section thereto).
(dd) If
there
is any investment property or deposit account included as Collateral that can
be
perfected by “control” through an account control agreement, the applicable
Debtor shall cause such an account control agreement, in form and substance
in
each case satisfactory to the Agent, to be entered into and delivered to the
Agent for the benefit of the Secured Parties.
(ee) To
the
extent that any Collateral consists of letter-of-credit rights, the applicable
Debtor shall cause the issuer of each underlying letter of credit to consent
to
an assignment of the proceeds thereof to the Secured Parties.
(ff) To
the
extent that any Collateral is in the possession of any third party, the
applicable Debtor shall join with the Agent in notifying such third party of
the
Secured Parties’ security interest in such Collateral and shall use its best
efforts to obtain an acknowledgement and agreement from such third party with
respect to the Collateral, in form and substance reasonably satisfactory to
the
Agent.
(gg) If
any
Debtor shall at any time hold or acquire a commercial tort claim, such Debtor
shall promptly notify the Secured Parties in a writing signed by such Debtor
of
the particulars thereof and grant to the Secured Parties in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory
to
the Agent.
(hh) Each
Debtor shall immediately provide written notice to the Secured Parties of any
and all accounts which arise out of contracts with any governmental authority
and, to the extent necessary to perfect or continue the perfected status of
the
Security Interests in such accounts and proceeds thereof, shall execute and
deliver to the Agent an assignment of claims for such accounts and cooperate
with the Agent in taking any other steps required, in its judgment, under the
Federal Assignment of Claims Act or any similar federal, state or local statute
or rule to perfect or continue the perfected status of the Security Interests
in
such accounts and proceeds thereof.
(ii) Each
Debtor shall cause each subsidiary
of such
Debtor to immediately become a party hereto (an “Additional
Debtor”),
by
executing and delivering an Additional Debtor Joinder in substantially the
form
of Annex A attached hereto and comply with the provisions hereof applicable
to
the Debtors. Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or referred
to in) this Agreement, as applicable, which replacement schedules shall
supersede, or supplements shall modify, the Schedules then in effect. The
Additional Debtor shall also deliver such opinions of counsel, authorizing
resolutions, good standing certificates, incumbency certificates, organizational
documents, financing statements and other information and documentation as
the
Agent may reasonably request. Upon delivery of the foregoing to the Agent,
the
Additional Debtor shall be and become a party to this Agreement with the same
rights and obligations as the Debtors, for all purposes hereof as fully and
to
the same extent as if it were an original signatory hereto and shall be deemed
to have made the representations, warranties and covenants set forth herein
as
of the date of execution and delivery of such Additional Debtor Joinder, and
all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.
(jj) Each
Debtor shall vote the Pledged Securities to comply with the covenants and
agreements set forth herein and in the Debentures.
(kk) Each
Debtor shall register the pledge of the applicable Pledged Securities on the
books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities
to register the pledge of the applicable Pledged Securities in the name of
the
Secured Parties on the books of such issuer. Further, except with respect to
certificated securities delivered to the Agent, the applicable Debtor shall
deliver to Agent an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to perfection
by
registration) signed by the issuer of the applicable Pledged Securities, which
acknowledgement shall confirm that: (a) it has registered the pledge on its
books and records; and (b) at any time directed by Agent during the continuation
of an Event of Default, such issuer will transfer the record ownership of such
Pledged Securities into the name of any designee of Agent, will take such steps
as may be necessary to effect the transfer, and will comply with all other
instructions of Agent regarding such Pledged Securities without the further
consent of the applicable Debtor.
(ll) In
the
event that, upon an occurrence of an Event of Default, Agent shall sell all
or
any of the Pledged Securities to another party or parties (herein called the
“Transferee”)
or
shall purchase or retain all or any of the Pledged Securities, each Debtor
shall, to the extent applicable: (i) deliver to Agent or the Transferee, as
the
case may be, the articles of incorporation, bylaws, minute books, stock
certificate books, corporate seals, deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and all other
Organizational Documents and records of the Debtors and their direct and
indirect subsidiaries; (ii) use its best efforts to obtain resignations of
the
persons then serving as officers and directors of the Debtors and their direct
and indirect
subsidiaries,
if so requested; and (iii) use its best efforts to obtain any approvals that
are
required by any governmental or regulatory body in order to permit the sale
of
the Pledged Securities to the Transferee or the purchase or retention of the
Pledged Securities by Agent and allow the Transferee or Agent to continue the
business of the Debtors and their direct and indirect subsidiaries.
(mm) Without
limiting the generality of the other obligations of the Debtors hereunder,
each
Debtor shall promptly (i) cause to be registered at the United States Copyright
Office all of its material copyrights, (ii) cause the security interest
contemplated hereby with respect to all Intellectual Property registered at
the
United States Copyright Office or United States Patent and Trademark Office
to
be duly recorded at the applicable office, and (iii) give the Agent notice
whenever it acquires (whether absolutely or by license) or creates any
additional material Intellectual Property.
(nn) Each
Debtor will from time to time, at the joint and several expense of the Debtors,
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Agent
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Parties
to
exercise and enforce their rights and remedies hereunder and with respect to
any
Collateral or to otherwise carry out the purposes of this
Agreement.
(oo) Schedule
F
attached
hereto lists all of the patents, patent applications, trademarks, trademark
applications, registered copyrights, and domain names owned by any of the
Debtors as of the date hereof. Schedule
F
lists
all material licenses in favor of any Debtor for the use of any patents,
trademarks, copyrights and domain names as of the date hereof. All material
patents and trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.
(pp) Except
as
set forth on Schedule
G
attached
hereto, none of the account debtors or other persons or entities obligated
on
any of the Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute or
rule
in respect of such Collateral.
5. Effect
of Pledge on Certain Rights. If
any of
the Collateral subject to this Agreement consists of nonvoting equity or
ownership interests (regardless of class, designation, preference or rights)
that may be converted into voting equity or ownership interests upon the
occurrence of certain events (including, without limitation, upon the transfer
of all or any of the other stock or assets of the issuer), it is agreed that
the
pledge of such equity or ownership interests pursuant to this Agreement or
the
enforcement of any of Agent’s rights hereunder shall not be deemed to be the
type of event which would trigger such conversion rights notwithstanding any
provisions in the Organizational Documents or agreements to which any Debtor
is
subject or to which any Debtor is party.
6. Defaults.
The
following events shall be “Events
of Default”:
(a) The
occurrence of an Event of Default (as defined in the Debentures) under the
Debentures;
(b) Any
representation or warranty of any Debtor in this Agreement shall prove to have
been incorrect in any material respect when made;
(c) The
failure by any Debtor to observe or perform any of its obligations hereunder
for
five (5) days after delivery to such Debtor of notice of such failure by or
on
behalf of a Secured Party unless such default is capable of cure but cannot
be
cured within such time frame and such Debtor is using best efforts to cure
same
in a timely fashion; or
(d) If
any
provision of this Agreement shall at any time for any reason be declared to
be
null and void, or the validity or enforceability thereof shall be contested
by
any Debtor, or a proceeding shall be commenced by any Debtor, or by any
governmental authority having jurisdiction over any Debtor, seeking to establish
the invalidity or unenforceability thereof, or any Debtor shall deny that any
Debtor has any liability or obligation purported to be created under this
Agreement.
7. Duty
To Hold
In Trust.
(a) Upon
the
occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income,
dividend, interest
or other
sums subject to the Security Interests, whether payable pursuant to the
Debentures or otherwise, or of any check, draft, note, trade acceptance or
other
instrument evidencing an obligation to pay any such sum, hold the same in trust
for the Secured Parties and shall forthwith endorse and transfer any such sums
or instruments, or both, to the Secured Parties, pro-rata in proportion to
their
respective then-currently outstanding principal amount of Debentures for
application to the satisfaction of the Obligations (and if any Debenture is
not
outstanding, pro-rata in proportion to the initial purchases of the remaining
Debentures).
(b) If
any
Debtor shall become entitled to receive or shall receive any securities or
other
property (including, without limitation, shares of Pledged Securities or
instruments representing Pledged Securities acquired after the date hereof,
or
any options, warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of such Debtor or any of its direct
or indirect subsidiaries) in respect of the Pledged Securities (whether as
an
addition to, in substitution of, or in exchange for, such Pledged Securities
or
otherwise), such Debtor agrees to (i) accept the same as the agent of the
Secured Parties; (ii) hold the same in trust on behalf of and for the benefit
of
the Secured Parties; and (iii) to deliver any and all certificates or
instruments evidencing the same to Agent on or before the close of business
on
the fifth business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be held by
Agent subject to the terms of this Agreement as Collateral.
8. Rights
and Remedies Upon Default.
(a) Upon
the
occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through the Agent, shall have the right to exercise all of
the
remedies conferred hereunder and under the Debentures, and the Secured Parties
shall have all the rights and remedies of a secured party under the UCC. Without
limitation, the Agent, for the benefit of the Secured Parties, shall have the
following rights and powers:
(i) The
Agent
shall have the right to take possession of the Collateral and, for that purpose,
enter, with the aid and assistance of any person, any premises where the
Collateral, or any part thereof, is or may be placed and remove the same, and
each Debtor shall assemble the Collateral and make it available to the Agent
at
places which the Agent shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Agent, without rent, all of
such Debtor’s respective premises and facilities for the purpose of the Agent
taking possession of, removing or putting the Collateral in saleable or
disposable form.
(ii) Upon
notice to the Debtors by Agent, all rights of each Debtor to exercise the voting
and other consensual rights which it would otherwise be entitled to exercise
and
all rights of each Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon such notice,
Agent shall have the right to receive, for the benefit of the Secured Parties,
any interest, cash dividends or other payments on the Collateral and, at the
option of Agent, to exercise in such Agent’s discretion all voting rights
pertaining thereto. Without limiting the generality of the foregoing, Agent
shall have the right (but not the obligation) to exercise all rights with
respect to the Collateral as it were the sole and absolute owner thereof,
including, without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a merger,
reorganization, consolidation, recapitalization or other readjustment concerning
or involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.
(iii) The
Agent
shall have the right to operate the business of each Debtor using the Collateral
and shall have the right to assign, sell, lease or otherwise dispose of and
deliver all or any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and at such
time
or times and at such place or places, and upon such terms and conditions as
the
Agent may deem commercially reasonable, all without (except as shall be required
by applicable statute and cannot be waived) advertisement or demand upon or
notice to any Debtor or right of redemption of a Debtor, which are hereby
expressly waived. Upon each such sale, lease, assignment or other transfer
of
Collateral, the Agent, for the benefit of the Secured Parties, may, unless
prohibited by applicable law which cannot be waived, purchase all or any part
of
the Collateral
being
sold, free from and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and released.
(iv) The
Agent
shall have the right (but not the obligation) to notify any account debtors
and
any obligors under instruments or accounts to make payments directly to the
Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights
against such account debtors and obligors.
(v) The
Agent, for the benefit of the Secured Parties, may (but is not obligated to)
direct any financial intermediary or any other person or entity holding any
investment property to transfer the same to the Agent, on behalf of the Secured
Parties, or its designee.
(vi) The
Agent
may (but is not obligated to) transfer any or all Intellectual Property
registered in the name of any Debtor at the United States Patent and Trademark
Office and/or Copyright Office into the name of the Secured Parties or any
designee or any purchaser of any Collateral.
(b) The
Agent
shall comply with any applicable law in connection with a disposition of
Collateral and such compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. The Agent may sell
the
Collateral without giving any warranties and may specifically disclaim such
warranties. If the Agent sells any of the Collateral on credit, the Debtors
will
only be credited with payments actually made by the purchaser. In addition,
each
Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent’s rights and remedies hereunder,
including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies
with respect thereto.
(c) For
the
purpose of enabling the Agent to further exercise rights and remedies under
this
Section 8 or elsewhere provided by agreement or applicable law, each Debtor
hereby grants to the Agent, for the benefit of the Agent and the Secured
Parties, an irrevocable, nonexclusive license (exercisable without payment
of
royalty or other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Intellectual Property now owned or hereafter
acquired by such Debtor, and wherever the same may be located, and including
in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.
9. Applications
of Proceeds.
The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring
any
portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like
(including, without limitation, any taxes, fees and other costs incurred in
connection therewith) of the Collateral, to the reasonable attorneys’ fees and
expenses incurred by the Agent in enforcing the Secured Parties’ rights
hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata among the
Secured Parties (based
on
then-outstanding principal amounts of Debentures at the time of any such
determination), and to the payment of any other amounts required by applicable
law, after which the Secured Parties shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Parties are legally entitled, the Debtors will be liable for the
deficiency, together with interest thereon, at the rate of 18% per annum or
the
lesser amount permitted by applicable law (the “Default Rate”), and the
reasonable fees of any attorneys employed by the Secured Parties to collect
such
deficiency. To the extent permitted by applicable law, each Debtor waives all
claims, damages and demands against the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, unless due solely
to
the gross negligence or willful misconduct of the Secured Parties as determined
by a final judgment (not subject to further appeal) of a court of competent
jurisdiction.
10. Securities
Law Provision.
Each
Debtor recognizes that Agent may be limited in its ability to effect a sale
to
the public of all or part of the Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or
state securities laws (collectively, the “Securities
Laws”),
and
may be compelled to resort to one or more sales to a restricted group of
purchasers who may be required to agree to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof. Each Debtor agrees that sales so made may be at prices and
on
terms less favorable than if the Pledged Securities were sold to the public,
and
that Agent has no obligation to delay the sale of any Pledged Securities for
the
period of time necessary to register the Pledged Securities for sale to the
public under the Securities Laws. Each Debtor shall cooperate with Agent in
its
attempt to satisfy any requirements under the Securities Laws (including,
without limitation, registration thereunder if requested by Agent) applicable
to
the sale of the Pledged Securities by Agent.
11 Costs
and Expenses.
Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation, any financing statements pursuant to the UCC, continuation
statements, partial releases and/or termination statements related thereto
or
any expenses of any searches reasonably required by the Agent, up to a maximum
of $5,000. The Debtors shall also pay all other claims and charges which in
the
reasonable opinion of the Agent is reasonably likely to prejudice, imperil
or
otherwise affect the Collateral or the Security Interests therein. The Debtors
will also, upon demand, pay to the Agent the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of
any
experts and agents, which the Agent, for the benefit of the Secured Parties,
may
incur in connection with (i) the enforcement of this Agreement, (ii) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Collateral, or (iii) the exercise or enforcement of any of the rights
of the Secured Parties under the Debentures. The Debtors shall notify the
Company in writing of any such fees, costs, expenses, claims and charges when
incurred by Debtors, and if any undisputed amounts of the foregoing are not
paid
by the Company within 30 calendar days following such notice, such amounts
shall
be added to the principal amount of the Debentures and shall bear interest
at
the Default Rate.
12. Responsibility
for Collateral.
The
Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or
its
unavailability
for any reason. Without limiting the generality of the foregoing, (a) neither
the Agent nor any Secured Party (i) has any duty (either before or after an
Event of Default) to collect any amounts in respect of the Collateral or to
preserve any rights relating to the Collateral, or (ii) has any obligation
to
clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor
shall
remain obligated and liable under each contract or agreement included in the
Collateral to be observed or performed by such Debtor thereunder. Neither the
Agent nor any Secured Party shall have any obligation or liability under any
such contract or agreement by reason of or arising out of this Agreement or
the
receipt by the Agent or any Secured Party of any payment relating to any of
the
Collateral, nor shall the Agent or any Secured Party be obligated in any manner
to perform any of the obligations of any Debtor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Agent or any Secured Party in respect of the Collateral
or as to the sufficiency of any performance by any party under any such contract
or agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Agent or to which the Agent or any Secured Party may be entitled
at any time or times.
13. Security
Interests Absolute.
All
rights of the Secured Parties and all obligations of the Debtors hereunder,
shall be absolute and unconditional, irrespective of: (a) any lack of validity
or enforceability of this Agreement, the Debentures or any agreement entered
into in connection with the foregoing, or any portion hereof or thereof; (b)
any
change in the time, manner or place of payment or performance of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Debentures or any other agreement
entered into in connection with the foregoing; (c) any exchange, release or
nonperfection of any of the Collateral, or any release or amendment or waiver
of
or consent to departure from any other collateral for, or any guarantee, or
any
other security, for all or any of the Obligations; (d) any action by the Secured
Parties to obtain, adjust, settle and cancel in its sole discretion any
insurance claims or matters made or arising in connection with the Collateral;
or (e) any other circumstance which might otherwise constitute any legal or
equitable defense available to a Debtor, or a discharge of all or any part
of
the Security Interests granted hereby. Until the Obligations shall have been
paid and performed in full, the rights of the Secured Parties shall continue
even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy. Each Debtor
expressly waives presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance. In the event that at any time any
transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed by final order of a court of competent jurisdiction
to
have been a voidable preference or fraudulent conveyance under the bankruptcy
or
insolvency laws of the United States, or shall be deemed to be otherwise due
to
any party other than the Secured Parties, then, in any such event, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. Each Debtor waives all
right
to require the Secured Parties to proceed against any other person or
entity
or
to
apply
any Collateral which the Secured Parties may hold at any time, or to marshal
assets, or to pursue any other remedy. Each Debtor waives any defense arising
by
reason of the application of the statute of limitations to any obligation
secured hereby.
14. Term
of Agreement.
This
Agreement and the Security Interests shall terminate on the date on which all
payments under the Debentures have been indefeasibly paid in full and all other
Obligations have been paid or discharged; provided, however, that all
indemnities of the Debtors contained in this Agreement (including, without
limitation, Annex B hereto) shall survive and remain operative and in full
force
and effect regardless of the termination of this Agreement.
15. Power
of Attorney; Further Assurances.
(a) Each
Debtor authorizes the Agent, and does hereby make, constitute and appoint the
Agent and its officers, agents, successors or assigns with full power of
substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in
the name of the Agent or such Debtor, to, after the occurrence and during the
continuance of an Event of Default, (i) endorse any note, checks, drafts, money
orders or other instruments of payment (including payments payable under or
in
respect of any policy of insurance) in respect of the Collateral that may come
into possession of the Agent; (ii) to sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise, settle
and sue for monies due in respect of the Collateral; (v) to transfer any
Intellectual Property or provide licenses respecting any Intellectual Property;
and (vi) generally, at the option of the Agent, and at the expense of the
Debtors, at any time, or from time to time, to execute and deliver any and
all
documents and instruments and to do all acts and things which the Agent deems
necessary to protect, preserve and realize upon the Collateral and the Security
Interests granted therein in order to effect the intent of this Agreement and
the Debentures all as fully and effectually as the Debtors might or could do;
and each Debtor hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding. The
designation set forth herein shall be deemed to amend and supersede any
inconsistent provision in the Organizational Documents or other documents or
agreements to which any Debtor is subject or to which any Debtor is a party.
Without
limiting the generality of the foregoing, after the occurrence and during the
continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of transfer
and assignment of any patents, trademarks, copyrights or other Intellectual
Property with the United States Patent and Trademark Office and the United
States Copyright Office.
(b) On
a
continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and
record, as the case may be, with the proper filing and recording agencies in
any
jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule
C
attached
hereto, all such instruments, and take all such action as may reasonably be
deemed
necessary or advisable, or as reasonably requested by the Agent, to perfect
the
Security Interests granted hereunder and otherwise to carry out the intent
and
purposes of this Agreement, or for assuring and confirming to the Agent the
grant or perfection of a perfected security interest in all the Collateral
under
the UCC.
(c) Each
Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact,
with full authority in the place and instead of such Debtor and in the name
of
such Debtor, from time to time in the Agent’s discretion, to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of such Debtor
where permitted by law, which financing statements may (but need not) describe
the Collateral as “all assets” or “all personal property” or words of like
import, and ratifies all such actions taken by the Agent. This power of attorney
is coupled with an interest and shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be
outstanding.
16. Notices.
All
notices, requests, demands and other communications hereunder shall be subject
to the notice provision of the Purchase Agreement (as such term is defined
in
the Debentures).
17. Other
Security.
To the
extent that the Obligations are now or hereafter secured by property other
than
the Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Agent shall have the right, in
its
sole discretion, to pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any
of
the Secured Parties’ rights and remedies hereunder.
18. Appointment
of Agent.
The
Secured Parties hereby appoint Bristol Investment Fund, Ltd. to act as their
agent (“Bristol”
or
“Agent”)
for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder. Such appointment shall continue until revoked in writing by a
Majority
in Interest, at which time a Majority in Interest
shall
appoint a new Agent, provided that Bristol may not be removed as Agent unless
Bristol shall then hold less than $75,000 in principal amount of
Debentures;
provided,
further,
that
such removal may occur only if each of the other Secured Parties shall then
hold
not less than an aggregate of $250,000 in principal amount of Debentures.
The
Agent
shall have the rights, responsibilities and immunities set forth in Annex
B
hereto.
19. Miscellaneous.
(a) No
course
of dealing between the Debtors and the Secured Parties, nor any failure to
exercise, nor any delay in exercising, on the part of the Secured Parties,
any
right, power or privilege hereunder or under the Debentures shall operate as
a
waiver thereof; nor shall any single or partial exercise of any right, power
or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
(b) All
of
the rights and remedies of the Secured Parties with respect to the Collateral,
whether established hereby or by the Debentures or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.
(c) This
Agreement,
together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto.
No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Debtors and the Secured Parties or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought.
(d) If
any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
(e) No
waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise
any
right hereunder in any manner impair the exercise of any such
right.
(f) This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company and the Guarantors may
not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Secured Party (other than by merger). Any Secured Party
may assign any or all of its rights under this Agreement to any Person to whom
such Secured Party assigns or transfers any Securities, provided such transferee
agrees in writing to be bound, with respect to the transferred Securities,
by
the provisions of this Agreement that apply to the “Secured
Parties.”
(g) Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
(h) All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each Debtor agrees that all proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and the Debentures (whether brought against
a
party hereto or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of Manhattan.
Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, Borough of Manhattan
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 proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding by mailing
a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If any party shall commence a proceeding to enforce any
provisions of this Agreement, then the prevailing party in such proceeding
shall
be reimbursed by the other party for its reasonable attorney’s fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such proceeding.
(i) This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
(j) All
Debtors shall jointly and severally be liable for the obligations of each Debtor
to the Secured Parties hereunder.
(k) Each
Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured
Parties and their respective partners, members, shareholders, officers,
directors, employees and agents (and any other persons with other titles that
have similar functions) (collectively, “Indemnitees”)
from
and against any and all losses, claims, liabilities, damages, penalties, suits,
costs and expenses, of any kind or nature, (including fees relating to the
cost
of investigating and defending any of the foregoing) imposed on, incurred by
or
asserted against such Indemnitee in any way related to or arising from or
alleged to arise from this Agreement or the Collateral, except any such losses,
claims,
liabilities,
damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any
other
indemnification provision in the Debentures, the Purchase Agreement (as such
term is defined in the Debentures) or any other agreement, instrument or other
document executed or delivered in connection herewith or therewith.
(l) Nothing
in this Agreement shall be construed to subject Agent or any Secured Party
to
liability as a partner in any Debtor or any if its direct or indirect
subsidiaries that is a partnership or as a member in any Debtor or any of its
direct or indirect subsidiaries that is a limited liability company, nor shall
Agent or any Secured Party be deemed to have assumed any obligations under
any
partnership agreement or limited liability company agreement, as applicable,
of
any such Debtor or any if its direct or indirect subsidiaries or otherwise,
unless and until any such Secured Party exercises its right to be substituted
for such Debtor as a partner or member, as applicable, pursuant
hereto.
(m) To
the
extent that the grant of the security interest in the Collateral and the
enforcement of the terms hereof require the consent, approval or action of
any
partner or member, as applicable, of any Debtor or any direct or indirect
subsidiary of any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby grant such consent and approval
and
waive any such noncompliance with the terms of said documents.
[SIGNATURE
PAGES FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above
written.
OXIS
INTERNATIONAL, INC.
|
By:__________________________________________
Name:
Marvin Hausman
Title:
Chief Executive Officer
|
|
OXIS
THERAPEUTICS, INC.
|
By:__________________________________________
Name:
Marvin Hausman
Title:
Chief Executive Officer
|
OXIS
ISLE OF MAN LIMITED
|
By:__________________________________________
Name:
Marvin Hausman
Title:
Chief Executive Officer
|
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[SIGNATURE
PAGE OF HOLDERS TO OXIS SA]
Name
of
Investing Entity: __________________________
Signature
of Authorized Signatory of Investing entity:
_________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
ANNEX
A
to
SECURITY
AGREEMENT
FORM
OF ADDITIONAL DEBTOR JOINDER
Security
Agreement dated as of October 25, 2006 made by
Oxis
International, Inc.
and
its
subsidiaries party thereto from time to time, as Debtors
to
and in
favor of
the
Secured Parties identified therein (the “Security
Agreement”)
Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.
The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Parties referred to above, the undersigned shall (a) be an
Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the
same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein as of the
date
of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE
SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH
IN
THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL
PROVISIONS SET FORTH THEREIN.
Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable.
An
executed copy of this Joinder shall be delivered to the Secured Parties, and
the
Secured Parties may rely on the matters set forth herein on or after the date
hereof. This Joinder shall not be modified, amended or terminated without the
prior written consent of the Secured Parties.
IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in
the
name and on behalf of the undersigned.
[Name
of
Additional Debtor]
By:
Name:
Title:
Address:
Dated:
ANNEX
B
to
SECURITY
AGREEMENT
THE
AGENT
1.
Appointment. The
Secured Parties (all capitalized terms used herein and not otherwise defined
shall have the respective meanings provided in the Security Agreement to which
this Annex B is attached (the "Agreement")),
by
their acceptance of the benefits of the Agreement, hereby designate Bristol
Investment Fund, Ltd. (“Bristol”
or
“Agent”)
as the
Agent to act as specified herein and in the Agreement. Each Secured Party shall
be deemed irrevocably to authorize the Agent to take such action on its behalf
under the provisions of the Agreement and any other Transaction Document (as
such term is defined in the Debentures) and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated
to or
required of the Agent by the terms hereof and thereof and such other powers
as
are reasonably incidental thereto. The Agent may perform any of its duties
hereunder by or through its agents or employees.
2.
Nature
of Duties.
The
Agent shall have no duties or responsibilities except those expressly set forth
in the Agreement. Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for
any
action taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss, unless caused solely
by its or their gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent jurisdiction.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of the Agreement or any other Transaction
Document a fiduciary relationship in respect of any Debtor or any Secured Party;
and nothing in the Agreement or any other Transaction Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent
any
obligations in respect of the Agreement or any other Transaction Document except
as expressly set forth herein and therein.
3.
Lack
of Reliance on the Agent.
Independently and without reliance upon the Agent, each Secured Party, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Company
and its subsidiaries in connection with such Secured Party’s investment in the
Debtors, the creation and continuance of the Obligations, the transactions
contemplated by the Transaction Documents, and the taking or not taking of
any
action in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and of the value of the
Collateral from time to time, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Secured Party with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred or
at
any
time or times thereafter. The Agent shall not be responsible to the Debtors
or
any Secured Party for any recitals, statements, information, representations
or
warranties herein or in any document, certificate or other writing delivered
in
connection herewith, or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial condition
of
the Debtors or the value of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction Document,
or
the financial condition of the Debtors, or the value of any of the Collateral,
or the existence or possible existence of any default or Event of Default under
the Agreement, the Debentures or any of the other Transaction
Documents.
4.
Certain
Rights of the Agent.
The
Agent shall have the right to take any action with respect to the Collateral,
on
behalf of all of the Secured Parties. To the extent practical, the Agent shall
request instructions from the Secured Parties with respect to any material
act
or action (including failure to act) in connection with the Agreement or any
other Transaction Document, and shall be entitled to act or refrain from acting
in accordance with the instructions of Secured Parties holding a majority in
principal amount of Debentures (based on then-outstanding principal amounts
of
Debentures at the time of any such determination); if such instructions are
not
provided despite the Agent’s request therefor, the Agent shall be entitled to
refrain from such act or taking such action, and if such action is taken, shall
be entitled to appropriate indemnification from the Secured Parties in respect
of actions to be taken by the Agent; and the Agent shall not incur liability
to
any person or entity by reason of so refraining. Without limiting the foregoing,
(a) no Secured Party shall have any right of action whatsoever against the
Agent
as a result of the Agent acting or refraining from acting hereunder in
accordance with the terms of the Agreement or any other Transaction Document,
and the Debtors shall have no right to question or challenge the authority
of,
or the instructions given to, the Agent pursuant to the foregoing and (b) the
Agent shall not be required to take any action which the Agent believes (i)
could reasonably be expected to expose it to personal liability or (ii) is
contrary to this Agreement, the Transaction Documents or applicable
law.
5.
Reliance.
The
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it
and
upon all other matters pertaining to this Agreement and the other Transaction
Documents and its duties thereunder, upon advice of other experts selected
by
it. Anything to the contrary notwithstanding, the Agent shall have no obligation
whatsoever to any Secured Party to assure that the Collateral exists or is
owned
by the Debtors or is cared for, protected or insured or that the liens granted
pursuant to the Agreement have been properly or sufficiently or lawfully
created, perfected, or enforced or are entitled to any particular
priority.
6.
Indemnification.
To the
extent that the Agent is not reimbursed and indemnified by the Debtors, the
Secured Parties will jointly and severally reimburse and indemnify the Agent,
in
proportion to their initially purchased respective principal amounts of
Debentures, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in performing its duties hereunder or under the
Agreement or any other Transaction Document, or in any way relating to or
arising out of the Agreement or any other Transaction Document except for those
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction to have resulted solely from the Agent's own gross
negligence or willful misconduct. Prior to taking any action hereunder as Agent,
the Agent may require each Secured Party to deposit with it sufficient sums
as
it determines in good faith is necessary to protect the Agent for costs and
expenses associated with taking such action.
7.
Resignation
by the Agent.
(a)
The
Agent may resign from the performance of all its functions and duties under
the
Agreement and the other Transaction Documents at any time by giving 30 days'
prior written notice (as provided in the Agreement) to the Debtors and the
Secured Parties. Such resignation shall take effect upon the appointment of
a
successor Agent pursuant to clauses (b) and (c) below.
(b)
Upon
any such notice of resignation, the Secured Parties, acting by a Majority
in Interest,
shall
appoint a successor Agent hereunder.
(c)
If a
successor Agent shall not have been so appointed within said 30-day period,
the
Agent shall then appoint a successor Agent who shall serve as Agent until such
time, if any, as the Secured Parties appoint a successor Agent as provided
above. If a successor Agent has not been appointed within such 30-day period,
the Agent may petition any court of competent jurisdiction or may interplead
the
Debtors and the Secured Parties in a proceeding for the appointment of a
successor Agent, and all fees, including, but not limited to, extraordinary
fees
associated with the filing of interpleader and expenses associated therewith,
shall be payable by the Debtors on demand.
8.
Rights
with respect to Collateral.
Each
Secured Party agrees with all other Secured Parties and the Agent (i) that
it
shall not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other agreement
or
otherwise (other than pursuant to this Agreement), or take or institute any
action against the Agent or any of the other Secured Parties in respect of
the
Collateral or its rights hereunder (other than any such action arising from
the
breach of this Agreement) and (ii) that such Secured Party has no other rights
with respect to the Collateral other than as set forth in this Agreement and
the
other Transaction Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such
successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations under the Agreement. After any
retiring Agent’s resignation or removal hereunder as Agent, the provisions of
the Agreement including this Annex B shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.