EXHIBIT 10.39
AMERICAN TECHNOLOGY
CORPORATION
PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
DECEMBER 23, 2004
AMERICAN TECHNOLOGY CORPORATION
PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
TABLE OF CONTENTS
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1. PURCHASE AND SALE OF NOTES AND WARRANTS..................................................................1
1.1 Purchase and Sale of Notes......................................................................1
1.2 Purchase and Sale of Warrant....................................................................1
2. CLOSING, DELIVERY AND PAYMENT............................................................................2
2.1 Closing.........................................................................................2
2.2 Delivery........................................................................................2
2.3 Subsequent Sales of Securities..................................................................2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.................................................3
3.1 Organization, Good Standing and Qualification...................................................3
3.2 Subsidiaries....................................................................................3
3.3 Capitalization; Voting Rights...................................................................3
3.4 Authorization; Binding Obligations..............................................................4
3.5 SEC Reports and Filings.........................................................................4
3.6 Changes.........................................................................................5
3.7 Title to Properties and Assets; Liens, etc......................................................5
3.8 Compliance with Other Instruments...............................................................5
3.9 Litigation......................................................................................5
3.10 Employees.......................................................................................5
3.11 Registration Rights.............................................................................6
3.12 Compliance with Laws; Permits...................................................................6
3.13 Patents and Trademarks..........................................................................6
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3.14 Offering Valid..................................................................................7
3.15 Eligibility for Form S-3........................................................................7
3.16 Reporting Status................................................................................7
3.17 NASDAQ SmallCap Market..........................................................................7
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................................................7
4.1 Requisite Power and Authority...................................................................7
4.2 Investment Representations......................................................................8
5. CONDITIONS TO CLOSING...................................................................................11
5.1 Conditions to Purchasers' Obligations at the Closing...........................................11
5.2 Conditions to Obligations of the Company.......................................................12
6. REGISTRATION RIGHTS.....................................................................................13
6.1 Definitions....................................................................................13
6.2 Piggyback Registration.........................................................................14
6.3 Expenses of Registration.......................................................................15
6.4 Obligations of the Company.....................................................................15
6.5 Obligations of Holder..........................................................................16
6.6 Indemnification................................................................................16
6.7 Assignment of Registration Rights..............................................................18
6.8 Termination of Registration Rights.............................................................19
6.9 Amendment of Registration Rights...............................................................19
7. MISCELLANEOUS...........................................................................................19
7.1 Governing Law..................................................................................19
7.2 Survival.......................................................................................19
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7.3 Successors and Assigns.........................................................................19
7.4 Entire Agreement...............................................................................19
7.5 Severability...................................................................................20
7.6 Amendment and Waiver...........................................................................20
7.7 Delays or Omissions............................................................................20
7.8 Notices........................................................................................20
7.9 Expenses.......................................................................................20
7.10 Attorneys' Fees................................................................................21
7.11 Confidentiality................................................................................21
7.12 Titles and Subtitles...........................................................................21
7.13 Counterparts...................................................................................21
7.14 Broker's Fees..................................................................................21
7.15 Exculpation Among Purchasers...................................................................21
7.16 Pronouns.......................................................................................21
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LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Promissory Note Exhibit B
Form of Warrant Exhibit C
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THIS PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement")
is entered into as of December 23, 2004, by and among American Technology
Corporation, a Delaware corporation (the "Company"), and each of those persons
and entities, severally and not jointly, whose names are set forth on the
Schedule of Purchasers attached hereto as EXHIBIT A (which persons and entities
are hereinafter collectively referred to as "Purchasers" and each individually
as a "Purchaser").
RECITALS
WHEREAS, the Company intends to sell a minimum aggregate principal
amount of $2 million and a maximum aggregate principal amount of $2.25 million
in unsecured subordinated promissory notes to the Purchasers in the form
attached hereto as EXHIBIT B (the "Notes"), with a minimum principal amount of
$50,000 from each Purchaser (which minimum principal amount may be reduced for a
Purchaser in the Company's sole discretion); and
WHEREAS, each Purchaser shall be entitled to receive a warrant in the
form attached hereto as EXHIBIT C (each, a "Warrant," collectively, the
"Warrants," and collectively with the Notes, the "Securities") exercisable for a
number of shares of Common Stock of the Company (the "Warrant Shares") such that
for every $100,000 in principal amount purchased under the Notes, the Purchaser
shall be entitled to a warrant exercisable for 7,500 Warrant Shares, prorated
for principal amounts less than $100,000; and
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 PURCHASE AND SALE OF NOTES. Subject to the terms and
conditions of this Agreement and pursuant to the Notes, the Purchasers agree to
purchase at the Closing, and the Company agrees to sell and issue to the
Purchaser at the Closing, Notes in the principal amounts as set forth next to
such Purchaser's name on the Schedule of Purchasers attached hereto as EXHIBIT A
at a price equal to one hundred percent (100%) of the principal amount thereof
(the "Investment").
1.2 PURCHASE AND SALE OF WARRANT. Subject to the terms and
conditions of this Agreement, the Purchasers agree to purchase, and the Company
agrees to sell and issue to the Purchasers at the Closing, Warrants to purchase
shares of the Company's Common Stock in the amounts as set forth next to such
Purchaser's name on the Schedule of Purchasers attached hereto as EXHIBIT A.
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2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the
Securities under this Agreement (the "Closing") shall take place at 10:00 a.m.
on the date hereof, at the offices of Sheppard Mullin Richter & Hampton LLP,
12544 High Bluff Drive, Suite 300, San Diego, California 92130, or at such other
time or place as the Company and Purchasers may mutually agree (such date is
hereinafter referred to as the "Closing Date").
2.2 DELIVERY.
(a) CLOSING DELIVERIES. At the Closing, each
Purchaser shall pay the purchase price for the Securities as set forth next to
such Purchaser's name on the Schedule of Purchasers attached hereto as EXHIBIT A
hereto by delivering immediately available funds in United States Dollars to the
Company's offices. The Company shall deliver to the Purchasers executed Notes
and Warrants in the principal amounts and for the number of shares of common
stock as set forth next to such Purchaser's name on the Schedule of Purchasers
attached hereto as EXHIBIT A.
(b) METHOD OF PAYMENT. Payment of the purchase price
for the Securities shall be made by cash, cashier's check, wire transfer, or
other form of immediately available funds:
US Bank
4180 La Jolla Village Drive
Suite 125
La Jolla, CA 92037
Attn: Josephine Bennett
(858) 597-8867
ABA#: 122235821
Account Name: American Technology Corporation
Account#: 165600532825
2.3 SUBSEQUENT SALES OF SECURITIES. At any time on or before
the 60th day following the Closing, the Company may sell additional Notes and
Warrants, provided that the aggregate principal amount of all Notes sold
hereunder shall not exceed $2.25 million. All such sales shall be made on the
terms and conditions set forth in this Agreement, including, without limitation,
the representations and warranties by such Purchasers as set forth in SECTION 4.
Any additional Notes sold pursuant to this SECTION 2.3 shall be deemed to be
"Notes" for all purposes under this Agreement, any Warrants sold pursuant to
this SECTION 2.3 shall be deemed "Warrants" for all purposes under this
Agreement, and any purchasers thereof shall be deemed to be "Purchasers" for all
purposes under this Agreement.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
Except as set forth in the SEC Documents (defined in SECTION 3.5 below)
or in the disclosure letter (the "Disclosure Letter") previously delivered to
the Purchasers (if any), the Company hereby represents and warrants to, and
covenants with, each Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Securities and to issue and sell the Securities and the
Warrant Shares and to carry out the provisions of this Agreement, the Notes and
Warrants and to carry on its business as presently conducted and as presently
proposed to be conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so would not have a material adverse effect on the Company
or its business.
3.2 SUBSIDIARIES. The Company owns no equity securities of any
other corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
3.3 CAPITALIZATION; VOTING RIGHTS. The authorized capital
stock of the Company consists of: (A) 50,000,000 shares of Common Stock, par
value $.00001 per share, of which, as of December 17, 2004 (the "Reference
Date"), (i) 19,808,819 shares are issued and outstanding, (ii) 1,997,123 shares
are subject to outstanding options, (iii) 96,991 shares are reserved for future
issuance to employees, directors and consultants pursuant to the Company's stock
option plans, (iv) 2,627,802 shares are subject to outstanding warrants, and (v)
3,684,782 shares of Common Stock are reserved for issuance under our committed
equity financing facility (the "Equity Financing Facility") with Kingsbridge
Capital Limited ("Kingsbridge"), no shares of which are outstanding as of the
Reference Date; and (B) 5,000,000 shares of Preferred Stock, par value $.00001
per share, of which (i) 350,000 shares are designated Series A Preferred Stock,
no shares of which are outstanding as of the Reference Date, (ii) 250,000 shares
are designated Series B Preferred Stock, no shares of which are outstanding as
of the Reference Date, (iii) 300,000 shares are designated as Series C Preferred
Stock, no shares of which are outstanding as of the Reference Date, (iv) 235,400
shares are designated Series D Preferred Stock, 50,000 of which are outstanding
as of the Reference Date and (v) 343,250 shares are designated Series E
Preferred Stock, 233,250 of which are issued and outstanding as of the Reference
Date. All issued and outstanding shares of the Company's Common Stock (a) have
been duly authorized and validly issued, and (b) are fully paid and
nonassessable. 168,750 shares of Common Stock have been duly and validly
reserved as Warrant Shares for issuance upon exercise of the Warrants. As of the
Reference Date, other than the shares of capital stock issuable upon exercise or
conversion of the foregoing outstanding options, warrants, convertible
securities and under the Equity Financing Facility, and except as may be granted
pursuant to this Agreement or the Warrants, there are no outstanding options,
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warrants, rights (including conversion, anti-dilution or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or agreements of any
kind for the purchase or acquisition from the Company of any of its securities.
When issued in compliance with the provisions of this Agreement and the
Certificate of Incorporation, as amended, and the Bylaws, as amended
(collectively, the "Charter"), the Securities and the Warrant Shares will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities and the Warrant Shares may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time a
transfer is proposed.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action
on the part of the Company, its officers, directors and stockholders necessary
for the authorization of this Agreement and the Securities, the performance of
all obligations of the Company hereunder and thereunder at the Closing and the
authorization, sale, issuance and delivery of the Securities pursuant hereto and
the Warrant Shares has been taken or will be taken prior to the Closing. The
Agreement, and the Securities, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; (b) general principles of equity that restrict the
availability of equitable remedies; and (c) to the extent that the
enforceability of the indemnification provisions in SECTION 6.6 of this
Agreement may be limited by applicable laws. The sale of the Securities and the
subsequent exercise of the Warrants into Warrant Shares are not and will not be
subject to any preemptive rights, anti-dilution or rights of first refusal that
have not been properly waived or complied with.
3.5 SEC REPORTS AND FILINGS. The Company has delivered to each
Purchaser, or made available on its website, complete and accurate copies of (i)
the Annual Report on Form 10-K for the fiscal year ended September 30, 2003,
(ii) the amended Annual Report on Form 10-K for the fiscal year ended September
30, 2003, (iii) the Quarterly Reports on Form 10-Q for the quarters ended
December 31, 2003, March 31, 2004, and June 30, 2004, as such reports have been
amended prior to the Closing, each as filed by the Company with the Securities
and Exchange Commission ("SEC"), and (iv) Current Reports on Form 8-K dated
December 17, 2004, November 22, 2004, September 28, 2004, August 5, 2004, June
25, 2004, April 28, 2004, February 20, 2004, February 12, 2004, December 29,
2003, December 10, 2003 and November 6, 2003 (the "SEC Documents"). The SEC
Documents, including the financial statements contained therein, (i) complied
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as the case may be, at and as of the times they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) in all material respects and (ii) did not at and as of the time
they were filed (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has made
all filings with the SEC required under the Securities Act, the Exchange Act and
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all regulations promulgated thereunder since September 30, 2001, other than
reports on Form 8-K for which the SEC has granted a safe harbor with respect to
the timing of the disclosure of such information.
3.6 CHANGES. Since June 30, 2004, there has been no material
adverse change or disruption in the business, operations, prospects or financial
condition of the Company other than as disclosed in the SEC Documents and other
than continued losses from operations in the ordinary course of the Company's
business.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company
has good and marketable title to its properties and assets, including the
properties and assets reflected in the most recent balance sheet included in the
SEC Documents, and good title to its leasehold estates, in each case subject to
no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Charter, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order, writ or, to its
knowledge, any statute, rule or regulation applicable to the Company which would
materially and adversely affect the business, assets, liabilities, financial
condition or operations of the Company. The execution, delivery, and performance
of and compliance with this Agreement, and the Securities, and the issuance and
sale of the Securities pursuant hereto and of the Warrant Shares, will not, with
or without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.9 LITIGATION. There is no action, suit, proceeding or
investigation pending or to the Company's knowledge currently threatened in
writing against the Company that questions the validity of this Agreement or the
Securities or the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated hereby or thereby, or, except as
disclosed in the SEC Documents, which might result, either individually or in
the aggregate, in any material adverse change in the assets, prospects,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing.
3.10 EMPLOYEES. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
Company.
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3.11 REGISTRATION RIGHTS. Except as required pursuant to this
Agreement and pursuant to the terms of a Series C Stock and Warrant Purchase
Agreement, a Series D Stock and Warrant Purchase Agreement, a Series E Stock and
Warrant Purchase Agreement, and a Registration Rights Agreement with Kingsbridge
pursuant to the Equity Financing Facility, the Company is presently not under
any obligation, and has not granted any rights, to register (as defined in
SECTION 6.1 of this Agreement) any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued.
3.12 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the
Company is not in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof or any administrative or self-regulatory agency in respect of the
conduct of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition or operations of the Company. No orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Securities or the Warrant
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
3.13 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information and other
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted, without any known infringement of the rights of
others. There are no outstanding options, licenses or agreements of any kind
relating to the foregoing, except those disclosed in the SEC Documents and those
entered into in the ordinary course of the Company's business. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
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3.14 OFFERING VALID. Assuming the accuracy of the
representations and warranties of the Purchasers contained in SECTION 4 hereof,
the offer, sale and issuance of the Securities and the Warrant Shares will be
exempt from the registration requirements of the Securities Act and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Securities to any person or persons so as
to bring the sale of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
3.15 ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for registration
of the sale by the Purchasers of the Warrant Shares, and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
and take all other necessary action so as to maintain such eligibility for the
use of Form S-3.
3.16 REPORTING STATUS. The Company's Common Stock is
registered under Section 12 of the Exchange Act. So long as any Purchaser
beneficially owns any of the Securities or Warrant Shares, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not voluntarily terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.
3.17 NASDAQ SMALLCAP MARKET. The Company's Common Stock is
listed on the Nasdaq SmallCap Market maintained by the National Association of
Securities Dealers, Inc. ("NASD"), and for so long as any Purchaser owns any of
the Warrants or Warrant Shares, the Company shall use its best efforts to
continue the listing and trading of its Common Stock on the Nasdaq SmallCap
Market or to secure and maintain listing and trading on the Nasdaq National
Market System, the New York Stock Exchange or the American Stock Exchange, and
shall comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such market or exchange. The Company is
not aware of any delisting or suspension proceeding regarding its Common Stock
or any SEC or NASD inquiries regarding the Company and does not reasonably
anticipate any such delisting, suspension or inquiry.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants, severally and not
jointly, to the Company as follows:
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out their provisions. All action on
Purchaser's part required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon its
execution and delivery, this Agreement will be a valid and binding obligation of
Purchaser, enforceable in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
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general application affecting enforcement of creditors' rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification provisions of
SECTION 6.6 of this Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Securities nor the Warrant Shares have been registered under the
Securities Act, and that the instruments representing the Securities and the
Warrant Shares will contain appropriate restrictive legends. Purchaser also
understands that the Securities are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the economic
risk of this investment with respect to the Warrant and Warrant Shares
indefinitely unless the Warrant or the Warrant Shares are registered pursuant to
the Securities Act, or an exemption from registration is available. Further,
there is no established market for the Notes, and none is likely to develop.
Purchaser understands that other than pursuant to the terms of this Agreement,
the Company has no present intention of registering the Securities or the
Warrant Shares. Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow Purchaser to transfer all or any
portion of the Securities or the Warrant Shares under the circumstances, in the
amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is
acquiring the Securities and the Warrant Shares for Purchaser's own account for
investment only, and not with a present view towards their distribution other
than in compliance with the Securities Act.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Unless Purchaser has
initialed the blank next to SECTION 4.2(H) below, Purchaser represents that it
is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) COMPANY INFORMATION. Purchaser has received and
read the SEC Documents and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
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(f) RULE 144. Purchaser acknowledges and agrees that
the Securities, and, if issued, the Warrant Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available. Purchaser has been advised or is aware of
the provisions of Rule 144 promulgated under the Securities Act as in effect
from time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and (other than Rule 144(k)) the number of shares being sold during any
three-month period not exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual,
then the Purchaser resides in the state or province identified in the address of
the Purchaser set forth on EXHIBIT A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on EXHIBIT A.
(Initial if applicable) ____
(h) FOREIGN INVESTORS. REGULATION S REPRESENTATIONS.
The representations in this SECTION 4.2(H) apply only to Purchasers who enter
their initials next to this section. Purchaser understands that the Company is
relying on the following representations and warranties, and other
representations and warranties in the SECTION 4, for the purpose of establishing
that the offer and sale of the Securities is excluded from Section 5 of the
Securities Act by virtue of Regulation S.
i. All offers and sales of securities to
Purchaser were made in an offshore transaction, as defined in Rule 902(h) of
Regulation S. Specifically, the offer to sell the Securities was made to
Purchaser who was located outside the United States at the time of such offer,
and this Agreement was executed by Purchaser or a duly authorized representative
of Purchaser located outside the United States at the time of execution.
ii. If Purchaser attempts to sell, transfer
or otherwise dispose of the Securities or the Warrant Shares prior to one year
after the Closing, such Purchaser agrees that:
a. Each "Distributor" (as defined in
Regulation S, Rule 902(d)) in connection with such resale agrees in writing (i)
that all offers and sales of the Securities and the Warrant Shares prior to the
expiration of the Distribution Compliance Period (as defined in Regulation S,
Rule 902(f)) shall be made only in accordance with the provisions of Regulation
S, Rule 903 or Rule 904, pursuant to registration of such securities under the
Securities Act, or pursuant to an available exemption from the registration
requirements of the Securities Act; and (ii) not to engage in hedging
transactions with regard to such securities prior to the expiration of the
Distribution Compliance Period, unless in compliance with the Securities Act.
b. All offering materials and documents
(other than press releases) used in connection with offers and sales of the
Securities and the Warrant Shares prior to the expiration of the Distribution
Compliance Period shall include statements to the effect that such securities
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have not been registered under the Securities Act and may not be offered or sold
in the United States or to U.S. Persons (as defined in SECTION 4.2(H)(III)),
other than Distributors, unless the securities are registered under the
Securities Act, or an exemption from the registration requirements of the
Securities Act is available. Such offering materials and documents also must
state that hedging transactions involving those securities may not be conducted
unless in compliance with the Securities Act. Such statements shall appear (i)
on the cover or inside cover page of any prospectus or offering circular used in
connection with the offer or sale of the securities; (ii) in the underwriting
section of any prospectus or offering circular used in connection with the offer
or sale of the securities; and (iii) in any advertisement made or issued by the
Company, any Distributor, any of their respective affiliates, or any person
acting on behalf of any of the foregoing. Such statements may appear in summary
form on prospectus cover pages and in advertisements.
c. The offer or sale of the Securities
and the Warrant Shares by such Purchaser shall not be made to a U.S. Person or
for the account of a U.S. Person, other than a Distributor.
d. The offer and sale of the Securities
and the Warrant Shares shall also comply with the following conditions (i) such
Purchaser shall require that prior to the sale or transfer, the purchaser of the
Securities or the Warrant Shares (other than a Distributor) certifies that it is
not a U.S. Person and is not acquiring such securities for the account or
benefit of any U.S. Person or certifies that it is a U.S. Person who purchased
securities in a transaction that did not require registration under the
Securities Act; (ii) such Purchaser shall require that prior to the sale or
transfer, the purchaser of such securities agrees to resell such securities only
in accordance with the provisions of Regulation S, pursuant to registration
under the Securities Act, or pursuant to an available exemption from
registration; and agrees not to engage in hedging transactions with regard to
such securities unless in compliance with the Securities Act; (iii) such
Purchaser shall require each Distributor selling securities to a Distributor, a
dealer (as defined in SECTION 2(12) of the Securities Act), or a person
receiving a selling concession, fee or other remuneration, prior to the
expiration of the Distribution Compliance Period, to send a confirmation or
other notice to the purchaser stating that the purchaser is subject to the same
restrictions on offers and sales that apply to the Distributor.
e. Such Purchaser understands that the
Securities and the Warrant Shares will at all times, prior to the expiration of
the Distribution Compliance Period, contain a legend to the effect that transfer
is prohibited except in accordance with the provisions of Regulation S, pursuant
to registration under the Securities Act, or pursuant to an available exemption
from registration; and that hedging transactions involving these securities may
not be conducted unless in compliance with the Securities Act.
f. Such Purchaser further understands
the Company, to comply with Regulation S, shall refuse to register any transfer
of the Securities or the Warrant Shares not made in accordance with the
provisions of Regulation S, pursuant to registration under the Securities Act,
or pursuant to an available exemption from registration.
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iii. Such Purchaser is not a U.S. Person and
is not acquiring the Securities for the account or benefit of any U.S. Person.
The term "U.S. Person" means (i) any natural person resident in the United
States; (ii) any partnership or corporation organized or incorporated under the
laws of the United States; (iii) any estate of which any executor or
administrator is a U.S. Person; (iv) any trust of which any trustee is a U.S.
Person; (v) any agency or branch of a foreign entity located in the United
States; (vi) any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or account
of a U.S. Person; (vii) any discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and (viii) any partnership
or corporation if: (1) organized or incorporated under the laws of any foreign
jurisdiction; and (2) formed by a U.S. Person principally for the purpose of
investing in securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by accredited investors (as defined in
Rule 501(a) under the Securities Act) who are not natural persons, estates or
trusts. Notwithstanding the foregoing definition of "U.S. Person": (a) any
discretionary account or similar account (other than an estate or trust) held
for the benefit or account of a non-U.S. Person by a dealer or other
professional fiduciary organized, incorporated, or (if an individual) resident
in the United States shall not be deemed a U.S. Person; (b) any estate of which
any professional fiduciary acting as executor or administrator is a U.S. Person
shall not be deemed a U.S. Person if: (1) an executor or administrator of the
estate who is not a U.S. Person has sole or shared investment discretion with
respect to the assets of the estate; and (2) the estate is governed by foreign
law; (c) any trust of which any professional fiduciary acting as trustee is a
U.S. Person shall not be deemed a U.S. Person if a trustee who is not a U.S.
Person has sole or shared investment discretion with respect to the trust
assets, and no beneficiary of the trust (and no settlor if the trust is
revocable) is a U.S. Person; (d) an employee benefit plan established and
administered in accordance with the law of a country other than the United
States and customary practices and documentation of such country shall not be
deemed a U.S. Person; (e) any agency or branch of a U.S. Person located outside
the United States shall not be deemed a U.S. Person if: (1) the agency or branch
operates for valid business reasons; and (2) the agency or branch is engaged in
the business of insurance or banking and is subject to substantive insurance or
banking regulation, respectively, in the jurisdiction where located; (f) the
International Monetary Fund, the International Bank for Reconstruction and
Development, the Inter-American Development Bank, the Asian Development Bank,
the African Development Bank, the United Nations, and their agencies, affiliates
and pension plans, and any other similar international organizations, their
agencies, affiliates and pension plans shall not be deemed U.S. Persons.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Securities at the Closing are subject to
the satisfaction, at or prior to the Closing Date, except for subsection (f)
which may be satisfied by the time period set forth in SECTION 2.3, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE
OF OBLIGATIONS. The representations and warranties made by the Company in
SECTION 3 hereof shall be true and correct in all material respects as of the
Closing Date with the same force and effect as if they had been made as of the
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Closing Date, and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to the
Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale
and issuance of the Securities and the proposed issuance of the Warrant Shares
shall be legally permitted by all laws and regulations to which Purchasers and
the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall
have obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement (except for
such as may be properly obtained subsequent to the Closing).
(d) RESERVATION OF WARRANT SHARES. The Warrant Shares
issuable upon exercise of the Warrants shall have been duly authorized and
reserved for issuance upon such conversion or exercise.
(e) NASDAQ SMALLCAP MARKET. The Company's Common
Stock shall be currently trading on the Nasdaq SmallCap Market. The Company and
Purchasers shall not be aware of any delisting or suspension proceeding
regarding the Company's Common Stock or any SEC or NASD inquiries regarding the
Company, nor shall the Company or any Purchaser reasonably anticipate any such
delisting, suspension or inquiry.
(f) SIZE OF OFFERING. Purchasers purchasing at least
an aggregate of $2,000,000 in principal amount of the Notes pursuant to this
Agreement shall have purchased, or will be purchasing, such Securities prior to
or concurrent with the Closing.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Securities at the Closing is subject to the
satisfaction, at or prior to such Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made in SECTION 4 hereof by those Purchasers
acquiring Securities shall be true and correct in all material respects at the
Closing Date, with the same force and effect as if they had been made on and as
of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall
have performed and complied with all agreements and conditions herein required
to be performed or complied with by such Purchasers on or before the Closing.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall
have obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement (except for
such as may be properly obtained subsequent to the Closing).
(d) PAYMENT. Each Purchaser shall have delivered to
the Company immediately available funds of an amount equal to the purchase price
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of the Securities as set forth next to such Purchaser's name on the Schedule of
Purchasers attached as EXHIBIT A hereto in accordance with SECTION 2.2 hereof.
6. REGISTRATION RIGHTS.
6.1 DEFINITIONS. As used in this SECTION 6, the following
terms shall have the following respective meanings:
"FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with SECTION 6.7 hereof.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company
issued or issuable upon exercise of the Warrants; and (b) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include (i) any securities held by a registered
broker-dealer, or any securities held by an affiliate or associate of a
broker-dealer who (x) did not purchase the securities in the ordinary course of
business or personal affairs or (y) at the time of purchase of the securities,
had an agreement or understanding, directly or indirectly, with any person to
distribute such securities, (ii) any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under this SECTION 6 are not
assigned, or (iii) any securities which are registered for resale under an
effective registration statement.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and are held by Non-Affiliates (as
defined in Section 7.6(a) below) either (a) are then issued and outstanding or
(b) are issuable pursuant to then exercisable or convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with this Section 6 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
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"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SPECIAL REGISTRATION STATEMENT" shall mean a registration
statement relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities Act and any
registration statement or registration statements that may be used to register
shares of Common Stock that may be issued to Kingsbridge pursuant to the Equity
Financing Facility or upon exercise of their warrant related thereto.
6.2 PIGGYBACK REGISTRATION. The Company shall notify all
Holders of Registrable Securities in writing at least ten (10) days prior to the
filing of any registration statement under the Securities Act for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within five (5) days after the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, other than a
registration statement for an underwritten offering subject to subsection (a)
below, such Holder shall have no further registration rights for its Registrable
Securities.
(a) UNDERWRITING. If the registration statement under
which the Company gives notice under this SECTION 6 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this SECTION 6 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All such Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of the Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude all Registrable Securities from, or
limit the number of Registrable Securities to be included in, the registration
and underwriting. No such reduction shall reduce the securities being offered by
the Company for its own account to be included in the registration and
underwriting. If any Holder disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, delivered at least ten (10) business days prior to the
effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration.
-14-
(b) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this SECTION 6 prior to the effectiveness of such registration whether or
not any Holder of Registrable Securities has elected to include securities in
such registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with SECTION 6.3 hereof.
6.3 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to SECTION 6.2 shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered.
6.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect
the registration of any Registrable Securities, the Company shall:
(a) Prepare and file with the SEC a registration
statement on Form S-3, or such other form available to the Company, with respect
to the number of Registrable Securities provided in SECTION 6.2, and thereafter
to use all reasonable efforts to cause each registration statement relating to
Registrable Securities to become effective and keep the registration statement
effective for two years after the Closing Date.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; PROVIDED that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and use its best efforts to prepare a supplement or amendment to
the registration statement to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each Holder as
such Holder may reasonably request.
-15-
(f) Use all reasonable efforts to prevent the
issuance of stop orders or any other suspensions in trading of the Company's
Common Stock by the SEC or any applicable exchange or market, and use its best
efforts to have removed or reversed any such stop order or suspension in trading
that occurs.
6.5 OBLIGATIONS OF HOLDER.
(a) No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this SECTION 6.
(b) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to SECTION 6.2 OR 6.4
that each Holder shall furnish to the Company such information regarding itself,
the Registrable Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such documents
in connection with such registration as the Company may reasonably request.
(c) Each Holder by such Holder's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
registration statement hereunder, unless such Holder has notified the Company in
writing of such Holder's election to waive all of such Holder's rights to
register any securities under this SECTION 6;
(d) Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
SECTION 6.4(E), such Holder will immediately discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities and all other transactions involving or relating to the
Company's securities until such Holder's receipt of copies of a supplemented or
amended prospectus and, if so directed by the Company, such Holder shall deliver
to the Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
6.6 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 6:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any partner, officer or director of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
-16-
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will pay as incurred to each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED HOWEVER, that the indemnity
agreement contained in this SECTION 6.6 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will,
if Registrable Securities held by such Holder are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; PROVIDED, HOWEVER,
that the indemnity agreement contained in this SECTION 6.6 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; PROVIDED FURTHER, that in no event shall any
indemnity under this SECTION 6.6 exceed the proceeds from the offering received
by such Holder.
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(c) Promptly after receipt by an indemnified party
under this SECTION 6.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this SECTION 6.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this SECTION 6.6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this SECTION 6.6.
(d) If the indemnification provided for in this
SECTION 6.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; PROVIDED, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under
this SECTION 6.6 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this agreement. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
6.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this SECTION 6 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(a) is a subsidiary, parent, general partner, limited partner, retired partner,
member or retired member of a Holder, (b) is a Holder's family member or trust
-18-
for the benefit of an individual Holder, or (c) acquires at least fifteen
thousand (15,000) shares of Registrable Securities (as adjusted for stock splits
and combinations); provided, however, (i) the transferor shall, within ten (10)
days after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (ii) such transferee shall agree
to be subject to all restrictions set forth in this Agreement.
6.8 TERMINATION OF REGISTRATION RIGHTS. All registration
rights granted under this SECTION 6 shall terminate and be of no further force
and effect two (2) years after the Closing Date. In addition, a Holder's
registration rights shall expire if all Registrable Securities held by and
issuable to such Holder (and its affiliates, partners, former partners, members
and former members) may be sold under Rule 144 during any ninety (90) day
period, assuming the use of Net Exercise as provided in the Warrants.
6.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
SECTION 6 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this SECTION 6.9 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this SECTION 6, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and
Schedules hereto, the Disclosure Letter, the Notes and the Warrants and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
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7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only
upon the written consent of the Company, the holders of at least fifty percent
(50%) of the aggregate outstanding principal amount of the Notes held by
Non-Affiliates (as defined below). The term "Non-Affiliates" shall mean persons
who are not at the time of determination directors or officers (as defined in
Rule 16a-1(f) promulgated under the Exchange Act) of the Company, or beneficial
owners (as determined in accordance with Rule 13d-3 promulgated under the
Exchange Act) of 10% or more the Company's outstanding Common Stock.
(b) The obligations of the Company and the rights of
the holders of the Notes, the Warrants and the Warrant Shares under this
Agreement may be waived only with the written consent of the holders of at least
fifty percent (50%) of the aggregate outstanding principal amount of the Notes
held by Non-Affiliates.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on any Purchaser's part of any breach, default or noncompliance under
this Agreement or any waiver on such party's part of any provisions or
conditions of the Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or otherwise afforded to any party, shall be cumulative and not
alternative.
7.8 NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified; (b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(c) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to Purchaser at the
address set forth on the signature page hereof or at such other address as the
Company or Purchaser may designate by ten (10) days advance written notice to
the other parties hereto.
7.9 EXPENSES. Each party shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement, the Notes and the Warrants.
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7.10 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
7.11 CONFIDENTIALITY. The Company shall not publicly disclose
the name or identity of any Purchaser unless (i) required by law or the rules
and regulations of the SEC, (ii) such Purchaser has given its prior written
consent or (iii) such information is already in the public domain.
7.12 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.13 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, by facsimile, or both, each of which shall be an
original, but all of which together shall constitute one instrument.
7.14 BROKER'S FEES. Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Notwithstanding the foregoing, the
Company may pay finder's fees in cash equal to up to 4% of the purchase price of
the Notes for the introduction of qualified Purchasers accepted by the Company.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this SECTION 7.14 being untrue.
7.15 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Securities and Warrant Shares.
7.16 PRONOUNS. All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine, feminine or
neutral, singular or plural, as to the identity of the parties hereto may
require.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed the Promissory
Note and Warrant Purchase Agreement as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
AMERICAN TECHNOLOGY CORPORATION
[Print Name of Purchaser]
13114 Evening Creek Drive South
San Diego, California 92128
By: ________________________________ By: ________________________________
Name: _______________________________ Title (if any) ______________________
Title: ______________________________
Street address (not PO BOX):
_____________________________________
_____________________________________
_____________________________________
Phone number: _______________________
Fax number: _________________________
E-mail address: _____________________
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PROMISSORY AND WARRANT PURCHASE AGREEMENT
EXHIBIT A
SCHEDULE OF PURCHASERS
SHARES OF
AGGREGATE PRINCIPAL COMMON STOCK
PURCHASE AMOUNT OF UNDERLYING
NAME PRICE NOTE WARRANT
- -----------------------------------------------------------------------------------------------------------------------------
A-1
EXHIBIT B
FORM OF PROMISSORY NOTE
B-1
EXHIBIT C
FORM OF WARRANT
C-1