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
__________________
December 13, 2006
CHINA MEDIA GROUP CORPORATION
(Exact Name of Registrant as Specified in Charter)
Texas 5813 33-0034926
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(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation
or organization)
9901 I.H. 10 West, Suite 800, San Antonio, Texas, USA 78230
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 011 86 755 6165 7704
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
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01 Entry into a Material Definitive Agreement
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EQUITY LINE OF CREDIT
On December 7, 2006, China Media Group Corporation, a Texas corporation
(the "Company"), entered into an equity line of credit arrangement (the "ELOC
Arrangement") with Tailor-Made Capital Ltd., an Israeli company affiliated with
Meitav Investment House ("TMC"), which is a privately owned asset management
and investment banking firm based in Israel ("Meitav"). Pursuant to the
terms of the ELOC Arrangement, the Company will have the right to issue and
sell to TMC from time to time as specified in the related Securities
Purchase Agreement (the "SPA"), and TMC will be obligated to purchase from
the Company, up to $2,500,000 of shares of the Company's common stock on a
private placement basis pursuant to an exemption from registration provided
under Section 4(2) of the Security Act of 1933, as amended.
Under the terms of the related registration rights agreement between the
Company and TMC (the "RRA"), TMC will be entitled to resell such shares
of Common Stock as soon as the Company files a resale registration statement
(the "Registration Statement") with the U.S. Securities and Exchange
Commission (the "Commission") and the Registration Statement is declared
effective by the Commission. Under the terms of the RRA, the Company must
file the Registration Statement by no later than March 7, 2007, and such
Registration Statement must be declared effective by the Commission by no
later than May 7, 2007, or else the Company is in default of the RRA.
Pursuant to the terms and conditions of the SPA, on the Initial Closing
Date, which is expected to be December 12, 2006, the Company will issue the
followings to TMC:
* A commitment fee of 12,500,000 shares of Common Stock of the Company,
which fee was paid on December 11, 2006. Such shares will be "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1934, as
amended; and
* Two Warrants as follows:
* a Warrant to purchase up to 15,625,000 shares of Common Stock
with an exercise price equal to $0.030 per share, subject to adjustment as
provide in the related Warrant Agreement, from the Initial Closing Date to
May 31, 2009; and
* a Warrant to purchase up to 15,625,000 shares of Common Stock
with an exercise price equal to $0.036 per share, subject to adjustment as
provide in the related Warrant Agreement, from the Initial Closing Date to
May 31, 2009.
The Company will have the period of 24 consecutive months commencing
immediately after the date that the initial Registration Statement filed
by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission (but in no event later than 36 months
following December 7, 2006) to draw down funds under the ELOC Arrangement.
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CONVERTIBLE SECURITIES
Also on December 7, 2006, the Company entered into a Debenture Purchase
Agreement with TMC (the "DPA") whereby TMC agreed to purchase certain
convertible securities issued by the Company. Pursuant to the terms of
the DPA, the Company may sell and issue to TMC, and TMC will purchase
from the Company, up to an aggregate of $125,000 of convertible
debentures (the "Debentures") of the Company which will be due 12
months from the date of issuance.
TMC will deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to the Subscription Amount, which is the
aggregate amount to be paid for the Debentures purchased, applicable to
each of the three Closings shown below, and the Company will deliver to
each Purchaser of said Debentures its respective Debenture. Each
Closing will occur as follows:
* First Closing. The First Closing will be for $50,000 and will occur on,
or as soon as reasonably practicable following the date hereof.
* Second Closing. The Second Closing will be for up to $50,000 and will
occur on or as soon as reasonably practicable following the date the
Registration Statement is initially filed with the Commission.
* Third Closing. The Third Closing will be for up to $25,000 and will
occur on or as soon as reasonably practicable following the date that the
Registration Statement is declared effective by the Commission.
Under the terms of the Debentures, the Company will pay interest to TMC
on the aggregate unconverted and outstanding principal amount of the Debentures
at the rate of 10% per annum, payable annually, on the date on which
conversions, if any, will be effected by the holder of said Debentures
(each a "Conversion Date"), and on the Maturity Date.
The conversion price of the Debentures in effect on any Conversion Date
will be equal to $0.024, subject to adjustment as provide in the Debenture. At
any time after the date of the first issuance of the Debentures until the
Debentures are no longer outstanding, the Debentures will be convertible, in
whole or in part, into shares of Common Stock of the Company at the option of
TMC, at any time and from time to time, subject to a 4.99% conversion
limitation set forth in the Debenture. Provided certain conditions are
satisfied, the Company may redeem the Debentures any time before maturity
by paying to the holder thereof an amount equal to the principal amount
outstanding and accrued interest thereon being redeemed, plus a redemption
premium of 16% of the amount redeemed.
A copy of the SPA, RRA, Warrant, DPA, Debenture, and the related debenture
registration rights agreement are attached hereto.
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Item 3.02 Unregistered Sales of Equity Securities
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See Item 1.01 above.
Item 9.01 Financial Statements And Exhibits
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(a) Not applicable
(b) Not applicable
(c) Exhibit No. Description - See table below.
Exhibit Description Location
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Exhibit 10.1 ELOC Securities Purchase Agreement, Provided herewith
dated December 7, 2006, by and
between the Company and TMC
Exhibit 10.2 ELOC Registration Rights Agreement, Provided herewith
dated December 7, 2006, by and
between the Company and TMC
Exhibit 10.3 Warrant, dated December 7, 2006, Provided herewith
issued to TMC by the Company
Exhibit 10.4 Debenture Securities Purchase Provided herewith
Agreement, dated December 7,
2006, by and between the Company
and TMC
Exhibit 10.5 Convertible Debenture, dated Provided herewith
December 7, 2006, issued to
TMC by the Company
Exhibit 10.6 Debenture Registration Rights Provided herewith
Agreement, dated December 7,
2006, by and between the Company
and TMC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: December 13, 2006
CHINA MEDIA GROUP CORPORATION
By: /s/ Con Unerkov
------------------------
Name: Con Unerkov
Title: President
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EXHIBIT INDEX
Exhibit Description
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Exhibit 10.1 ELOC Securities Purchase Agreement, dated December
7, 2006, by and between the Company and TMC
Exhibit 10.2 ELOC Registration Rights Agreement, dated December
7, 2006, by and between the Company and TMC
Exhibit 10.3 Warrant, dated December 7, 2006, issued to TMC by
the Company
Exhibit 10.4 Debenture Securities Purchase Agreement, dated
December 7, 2006, by and between the Company and TMC
Exhibit 10.5 Convertible Debenture, dated December 7, 2006,
issued to TMC by the Company
Exhibit 10.6 Debenture Registration Rights Agreement, dated
December 7, 2006, by and between the Company and TMC
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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
December ___, 2006 by and between China Media Group Corporation, a Texas
corporation (the "Company") and Tailor Made Capital, Ltd. (the "Purchaser").
Capitalized terms used in this Agreement and not otherwise defined shall have
the meanings ascribed to them in Article 1.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and
sell to the Purchaser from time to time as provided herein, and the Purchaser
shall be obligated to purchase from the Company up to $2,500,000 worth of
shares of Common Stock on a private placement basis pursuant to an exemption
from registration under Section 4(2) of the Security Act of 1933; and
WHEREAS, the Purchaser shall be entitled to resell shares of Common Stock
acquired hereunder pursuant to a resale registration statement established
by the Company pursuant to the terms of the Registration Rights Agreement
between the Company and the Purchaser which shall be declared effective by
the Commission prior to the delivery of the first Draw Down Notice.
NOW, THEREFORE, in consideration of the foregoing premises, and the promises
and covenants herein contained, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions
In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, 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 the Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as the Purchaser will be deemed to be an Affiliate of the
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 Price" means on any particular date (a) the last reported closing
price per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 PM (New York time)), or (b) if there is
no such price on such date, then the closing price on the Trading Market
on the date nearest preceding such date (as reported by Bloomberg L.P. at
4:15 PM (New York time)), or (c) if the Common Stock is not then listed
or quoted on the Trading Market 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) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by
an appraiser selected in good faith by the Purchaser.
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"Commission" means the Securities and Exchange Commission.
"Commencement Date" shall mean the Trading Day immediately following the
date on which the applicable Draw Down Notice is delivered to the Purchaser.
"Commitment Amount" shall have the meaning assigned to such term in Section
2.1 hereof.
"Commitment Period" shall mean the period of 24 consecutive months
commencing immediately after the Effective Date but in no event later than
the 36 month anniversary of the date hereof.
"Common Stock" means the common stock of the Company, no par value 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 DLA Piper US LLP, with offices located at 203
North LaSalle Street, Suite 1900, Chicago, IL 60601.
"Consolidation Event" shall mean a sale of all or substantially all of the
Company's assets or a merger pursuant to which the holders of the voting
securities of the Company prior to the merger do not own a majority of the
voting securities of the surviving entity.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Discussion Time" shall have the meaning assigned to such term in Section
3.2(f) hereof.
"Draw Down" shall have the meaning assigned to such term in Section 6.1(a)
hereof.
"Draw Down Notice" shall have the meaning assigned to such term in
Section 6.1(c) hereof.
"Draw Down Pricing Period" shall mean a period of 10 consecutive Trading
Days including and immediately preceding the date on which the applicable
Draw Down Notice is delivered to the Purchaser.
"Draw Down Shares" shall mean the shares of Common Stock issuable pursuant
to a Draw Down.
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"DTC" shall have the meaning assigned to such term in Section 6.1(g).
"DWAC" shall have the meaning assigned to such term in Section 6.1(g).
"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.
"Equity Conditions" shall mean, during the period in question, (i) all
liquidated damages and other amounts owing to the Purchaser pursuant to
the Transaction Documents have been paid, (ii) there is an effective
Registration Statement pursuant to which the Purchaser is permitted to
utilize the prospectus thereunder to resell all of the Draw Down Shares
(issued and to be issued pursuant to the applicable Draw Down), the
Shares and the Warrant Shares (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable
future), (iii) the Common Stock is trading on the Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
or quoted (if applicable) for trading on a 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),
(iv) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of
the Draw Down Shares (issued and to be issued pursuant to the applicable
Draw Down), the Shares and the Warrant Shares, (v) the issuance of the
Draw Down Shares subject to the applicable Draw Down would not violate
the limitations set forth in Section 4.12, (vi) the daily trading volume
for each Trading Day during such period shall equal or exceed $5,000 of
Common Stock (based on the Closing Price on the applicable day) and (vii)
the Company, directly or indirectly, has not provided the Purchaser with
any material, non-public information that has not been made publicly
available in a widely disseminated release.
"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 any such securities, and (c)
securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors, 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.
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"Formula Price" means $0.024, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date
of this Agreement.
"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).
"Initial Closing" shall have the meaning assigned to such term in
Section 2.2 hereof.
"Initial Closing Date" shall have the meaning assigned to such term
in Section 2.2 hereof.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Investment Amount" shall have the meaning assigned to such term
in Section 6.1(c) hereof.
"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.
"Market Price" means, with respect to a Draw Down, the lowest Closing
Price during the Draw Down Pricing Period applicable to such Draw
Down.
"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).
"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.
"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.
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"Purchase Price" shall mean, with respect to Draw Down Shares purchased
during each applicable Draw Down Pricing Period, (i) as to the first
$500,000 of the Commitment Amount, (a) if the applicable Market Price
is less than 150% of the Formula Price, 90% of such Market Price, (b)
if the applicable Market Price is equal to or greater than 150% of the
Formula Price and equal to or less than 175% of the Formula Price, 91%
of such Market Price, (c) if the applicable Market Price is greater
than 175% of the Formula Price and equal to or less than 200% of the
Formula Price, 93% of such Market Price, (d) if the applicable Market
Price is greater than 200% of the Formula Price, 96% of such Market
Price; (ii) as to the second $500,000 of the Commitment Amount, (a) if
the applicable Market Price is less than 150% of the Formula Price, 91%
of such Market Price, (b) if the applicable Market Price is equal to
or greater than 150% of the Formula Price and equal to or less than
175% of the Formula Price, 92% of such Market Price, (c) if the
applicable Market Price is greater than 175% of the Formula Price and
equal to or less than 200% of the Formula Price, 94% of such Market
Price, (d) if the applicable Market Price is greater than 200% of the
Formula Price, 97% of such Market Price; (iii) as to the third
$500,000 of the Commitment Amount, (a) if the applicable Market Price
is less than 150% of the Formula Price, 92% of such Market Price,
(b) if the applicable Market Price is equal to or greater than 150%
of the Formula Price and equal to or less than 175% of the Formula
Price, 93% of such Market Price, (c) if the applicable Market Price
is greater than 175% of the Formula Price and equal to or less than
200% of the Formula Price, 95% of such Market Price, (d) if the
applicable Market Price is greater than 200% of the Formula Price,
98% of such Market Price; (iv) as to the fourth $500,000 of the
Commitment Amount, (a) if the applicable Market Price is less than
150% of the Formula Price, 93% of such Market Price, (b) if the
applicable Market Price is equal to or greater than 150% of the
Formula Price and equal to or less than 175% of the Formula Price,
94% of such Market Price, (c) if the applicable Market Price is
greater than 175% of the Formula Price and equal to or less than 200%
of the Formula Price, 96% of such Market Price, (d) if the applicable
Market Price is greater than 200% of the Formula Price, 99% of such
Market Price; and (v) as to the fifth and last $500,000 of the
Commitment Amount, (a) if the applicable Market Price is less than
150% of the Formula Price, 94% of such Market Price, (b) if the
applicable Market Price is equal to or greater than 150% of the
Formula Price and equal to or less than 175% of the Formula Price,
95% of such Market Price, (c) if the applicable Market Price is
greater than 175% of the Formula Price and equal to or less than
200% of the Formula Price, 97% of such Market Price, (d) if the
applicable Market Price is greater than 200% of the Formula Price,
100% of such Market Price.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.7.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, between the Company and the
Purchaser, in the form of Exhibit A attached hereto.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement
and covering the resale by the Purchaser of the Draw Down Shares,
the Shares and the Warrant Shares.
"Required Approvals" shall have the meaning ascribed to such term
in Section 3.1(e).
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"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Rule 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 effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Draw Down Shares, the Shares, the Warrants
and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account via DTC's DWAC system in exchange for
payment therefor.
"Settlement Date" shall have the meaning assigned to such term in
Section 6.1(f).
"Shares" shall mean the shares of Common Stock delivered to the
Purchaser at the Initial Closing pursuant to Section 2.2.
"Subsidiary" shall have the meaning ascribed to such term in
Section 3.1(a).
"Short Sales" shall include all "short sales" as defined in Rule
200 of Regulation SHO under the Exchange Act.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Trading Cushion" shall mean the mandatory 5 Trading Days between
Draw Down Pricing Periods.
"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 Nasdaq Capital Market, the American Stock Exchange,
the New York Stock Exchange, the Nasdaq National Market or the
OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Warrants, and the
Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Warrants" means collectively the Common Stock purchase warrants,
in the form of Exhibit C delivered to the Purchaser at the Initial
Closing in accordance with Section 2.2 hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 2
years and five months from the date of issuance.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
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ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of Draw Down Shares. Upon the terms and
subject to the conditions of this Agreement, the Company may sell and
issue to the Purchaser and the Purchaser shall be obligated to
purchase from the Company, up to an aggregate of $2,500,000 worth of
shares of Common Stock (the "Commitment Amount").
2.2 Initial Closing. The execution and delivery of this Agreement
and the other agreements referred to herein (the "Initial Closing")
shall take place at the offices of FWS, 420 Lexington Avenue, Suite
2620, New York, New York 10170 (i) at 10:00 a.m. local time within 5
Trading Days of the date hereof, or (ii) at such other time and place
or on such date as the Purchaser and the Company may agree upon (the
"Initial Closing Date"). Each party shall deliver the following
documents, instruments and writings at or prior to the Initial Closing:
(a) the Company shall deliver or cause to be delivered to the
Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
Exhibit B attached hereto;
(iii) a certificate evidencing 12,500,000 shares of Common
Stock registered in the name of the Purchaser;
(iv) Two (2) Warrants registered in the name of the Purchaser
issued as follows:
(1) a Warrant to purchase up to 15,625,000 shares
of Common Stock with an exercise price equal to
$0.03, subject to adjustment therein; and
(2) a Warrant to purchase up to 15,625,000 shares
of Common Stock with an exercise price equal to
$0.036, subject to adjustment therein; and
(v) the Registration Rights Agreement duly executed by the
Company.
(b) the Purchaser shall deliver or cause to be delivered to the
Company the following:
(i) this Agreement duly executed by the Purchaser; and
(ii) the Registration Rights Agreement duly executed by the
Purchaser.
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, the Company hereby makes the representations and
warranties set forth below to each Purchaser. Except as set forth under
the corresponding section of 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 representations and warranties
set forth below to the 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 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, then all other references in the
Transaction Documents to the Subsidiaries or any of them will be
disregarded.
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(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. 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, the issuance and sale of the Draw
Down Shares 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.
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(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 4.4 of this Agreement, (ii) the filing with the Commission of the
Registration Statement and any amendments or supplements thereto, (iii)
application(s) to each applicable Trading Market for the listing of the
Securities 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 Warrant 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 the maximum
number of shares of Common Stock issuable pursuant to this Agreement and
the Warrants.
(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 Purchaser) 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.
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(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to
be filed by it 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; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report, (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 1 Trading Day prior to the
date that this representation is made.
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(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.
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(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 expected 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 $5,000,000. 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.
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(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. The brokerage or finder's fees or commissions
that 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 are as set forth on Schedule 3.1(s). The
Purchaser 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 Purchaser
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 Purchaser 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.
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(v) Registration Rights. Other than each of the Purchaser, 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 Purchaser as a
result of the Purchaser 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
Purchaser's 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 Purchaser or their agents or counsel with
any information that it believes constitutes or might constitute material,
non-public information. The Company understands and confirms that the
Purchaser 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 Purchaser regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do 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.
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(z) No Integrated Offering. Assuming the accuracy of the Purchaser's
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 provisions 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. The SEC Reports set 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
$125,000 (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
$125,000 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.
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(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 Purchaser 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 ending December 31, 2006, are a
registered public accounting firm as required by the Exchange Act.
(ff) Acknowledgment Regarding Purchaser's Purchase of Securities.
The Company acknowledges and agrees that each of the Purchaser 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 the Purchaser or any of its respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchaser's purchase of the Securities. The Company further represents to
the 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.
(gg) Manipulation of Price. 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, 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.
(hh) Acknowledgement Regarding Purchaser's Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding, it
is understood and acknowledged by the Company that none of the Purchaser
have been asked to agree, nor has the Purchaser agreed, to desist from
purchasing or selling long securities of the Company, including, without
limitation, during the periods that the value of the Draw Down Shares
deliverable in connection with a Draw Down are being determined. The
Company acknowledges that such aforementioned activities do not constitute
a breach of any of the Transaction Documents.
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3.2 Representations and Warranties of the Purchaser
Purchaser hereby represents and warrants as of the date hereof and as of
each Closing Date to the Company as follows:
(a) Organization; Authority. 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 the
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Purchaser. Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of the 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. 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
at the Initial Closing 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 the 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. Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time the Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises
any Warrants, 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. Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act.
(d) Experience of Purchaser. 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. 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. 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.
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(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
the transaction contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing from the
time that the 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, if the Purchaser is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of the
Purchaser's assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
the 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, the 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 the 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 the Purchaser under
this Agreement and the Registration Rights Agreement, as to issued
Securities only.
(b) The Purchaser agrees 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:
THESE SECURITIES HAVE NOT 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. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that the 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, the 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 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.
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(c) Certificates evidencing the Draw Down Shares, the Shares and Warrant
Shares shall not contain any legend (including the legend set forth in
Section 4.1(b)), (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 Draw Down Shares, the Shares
or Warrant Shares pursuant to Rule 144, or (iii) if such Draw Down Shares, the
Shares or Warrant 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 Company's transfer agent promptly after the Effective Date if
required by the Company's transfer agent to effect the removal of the legend
hereunder. If all or any portion of a Warrant is exercised at a time when
there is an effective registration statement to cover the resale of the Warrant
Shares, such Warrant 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 the Purchaser to the Company or the Company's
transfer agent of a certificate representing Draw Down Shares, Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such
third Trading Day, the "Legend Removal Date"), deliver or cause to be
delivered to the Purchaser a certificate representing such shares that is
free from all restrictive and other legends. All Draw Down Shares shall be
delivered without any restrictive legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Purchaser by crediting
the account of the Purchaser's prime broker with the Depository Trust Company
System.
(d) In addition to the Purchaser's other available remedies, the Company
shall pay to the Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Draw Down Shares, Shares or Warrant Shares (based
on the Closing Price of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $7.50 per Trading Day
(increasing to $15 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after 2nd Trading
Day following the Legend Removal Date until such certificate is delivered
without a legend. Nothing herein shall limit the 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 the 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) Purchaser 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 Furnishing of Information. As long as Purchaser owns any 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
the Purchaser owns any Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchaser and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchaser 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.
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4.3 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 Purchaser or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 5:30 p.m.
Eastern time on the fourth Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Documents
thereto. The Company and the Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor the 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 the Purchaser, or without
the prior consent of the 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.
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
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 the 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 Purchaser.
4.6 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 the Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto the Purchaser shall have executed a
written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that the Purchaser shall be relying on
the foregoing representations in effecting transactions in securities of the
Company.
4.7 Indemnification of Purchaser. Subject to the provisions of this
Section 4.7, the Company will indemnify and hold the 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 the 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 persons (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 the
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 the Purchaser, or any of its Affiliates,
by any stockholder of the Company who is not an Affiliate of the Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of the Purchaser's
representations, warranties or covenants under the Transaction Documents
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or any agreements or understandings the Purchaser may have with any such
stockholder or any violations by the Purchaser of state or federal securities
laws or any conduct by the 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, the 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 the
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 the 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 the 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 the Purchaser
Party in this Agreement or in the other Transaction Documents.
4.8 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of
Common Stock for the purpose of enabling the Company to issue Draw Down
Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.
4.9 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market,
and as soon as reasonably practicable following the Initial Closing (but
not later than the Effective Date) to list all of the Draw Down Shares,
the Shares and Warrant Shares on such Trading Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application all of the Draw
Down Shares, the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Draw Down Shares, the Shares
and Warrant Shares to be listed on such other Trading Market as promptly
as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market
and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Trading Market.
4.10 Short Sales and Confidentiality After The Date Hereof. Purchaser
covenants that neither it nor any Affiliate acting on its behalf or
pursuant to any understanding with it will, directly or indirectly,
execute any Net Short Sales (as defined below) during the following
period commencing on the date hereof and at the Discussion Time and
ending on the earliest of (i) the 24 month anniversary of the Effective
Date, (ii) such time that the Company has exercised Draw Downs for the
entire Commitment Amount hereunder, (iii) the 36 month anniversary of
the date of this Agreement and (iv) the termination of this Agreement.
Purchaser covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company
as described in Section 4.4, the Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Purchaser understands and acknowledges 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
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by the Office of Chief Counsel, Division of Corporation Finance. For
purposes of this Section 4.10, a "Net Short Sale" by the Purchaser shall
mean a sale of Common Stock by such Purchaser that is marked as a short
sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes
of determining whether there is an equivalent offsetting long position
in Common Stock held by the Purchaser, shares of Common Stock that have
not yet been converted pursuant to the convertible debenture of the
Company issued to the Purchaser on or about the date hereof in the
original principal amount of $50,000 shall be deemed to be held long
by the Purchaser (as well as shares of Common Stock underlying
convertible debentures issued to the Purchaser pursuant to that
certain debenture purchase agreement dated on or about the date
hereof), and the amount of shares of Common Stock held in a long
position shall be all such unconverted shares (ignoring any conversion
limitations included therein) issuable to such Purchaser on such date,
plus any shares of Common Stock otherwise then held by such Purchaser.
4.11 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 the 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 Purchaser 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 Purchaser.
4.12 The Shares. Anything in this Agreement to the contrary
notwithstanding, the Company may not make a Draw Down to the
extent that such Draw Down exceeds 4.999% of the then issued and
outstanding shares of Common Stock as reported in the Company's most
recent periodic report filed with the Commission.
4.13 Accuracy of Registration Statement. On each Settlement
Date, the Registration Statement and the prospectus therein (including
any prospectus supplement) shall not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made;
and on such Settlement Date the Registration Statement and the
prospectus therein will not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, the Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement and the prospectus therein
in reliance upon and in conformity with the information furnished in
writing to the Company by the Purchaser specifically for inclusion in
the Registration Statement and the prospectus therein.
4.14 Notice of Certain Events Affecting Registration; Suspension of
Right to Request a Draw Down. The Company will promptly notify the
Purchaser in writing upon the occurrence of any of the events set forth
in Section 3(d) of the Registration Rights Agreement. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation
of any of the foregoing events. The Company shall promptly make
available to the Purchaser any such supplements or amendments to the
related prospectus, at which time, provided that the registration
statement and any supplements and amendments thereto are then effective,
the Company may recommence the delivery of Draw Down Notices.
4.15 Participation in Future Financing.
(a) During the Commitment Period, upon any issuance by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents for
cash consideration (a "Subsequent Financing"), the Purchaser shall have
the right to participate in up to an amount of the Subsequent Financing
equal to the lesser of (i) 100% of the Subsequent Financing and (ii) $2
million per closing of a Subsequent Financing (the "Participation
Maximum") on the same terms, conditions and price provided for in the
Subsequent Financing.
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(b) At least 10 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to the 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 the Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 3 Trading Days 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 and
the Person or Persons through or with whom such Subsequent Financing
is proposed to be effected and shall include a term sheet or similar
document relating thereto as an attachment.
(c) If the Purchaser desires to participate in such Subsequent
Financing it must provide written notice to the Company by not later
than 5:30 p.m. (New York City time) on the 3rd Trading Day it receives
the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing 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
the Purchaser as of such 3rd 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 the Purchaser has received the Pre-Notice, notification by the
Purchaser of its 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 Participation Maximum, then the Company may
effect the remaining portion of such Participation Maximum on the terms
and with the Persons set forth in the Subsequent Financing Notice.
(e) The Company must provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser will again have the right of
participation set forth above in this Section 4.15, 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.
(f) Notwithstanding the foregoing, this Section 4.15 shall not
apply in respect of (i) an Exempt Issuance or (ii) an underwritten
public offering of Common Stock.
4.16 Subsequent Equity Sales.
(a) From the date hereof until the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents.
(b) Until the earlier of (i) the expiration of the Commitment
Period and (ii) the date that the Company has drawn down during the
term of this Agreement the entire Commitment Amount hereunder, 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. The Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.16 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
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ARTICLE V
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
5.1 Conditions Precedent to the Obligation of the Company to
Sell the Draw Down Shares. The obligation hereunder of the Company
to proceed to close this Agreement and to issue and sell the Draw
Down Shares to the Purchaser is subject to the satisfaction or waiver,
at or before the Initial Closing, and as of each Settlement Date of
each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company in writing at
any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchaser shall be true and
correct in all material respects as of the date when made and as of the
Initial Closing and as of each Settlement Date as though made at that
time (except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material
respects as of such dates).
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to
the Initial Closing and as of each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No material Action shall have
been commenced against the Purchaser or the Company or any subsidiary,
or any of the officers, directors or affiliates of the Company or any
subsidiary, seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(e) Initial Closing Deliveries. The delivery by the Purchaser of
the items set forth in Section 2.2(b) of this Agreement.
(f) The Shares. A registration statement covering the resale of
the Shares by the Purchaser shall have been declared effective by the
Commission within 6 months from the date hereof.
5.2 Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its
obligations under this Agreement and to purchase the Draw Down Shares
is subject to the satisfaction or waiver, at or before the Initial
Closing, of each of the conditions set forth below. These conditions
are for the Purchaser's sole benefit and may be waived by the
Purchaser in writing at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of
the Initial Closing as though made at that time (except for
representations and warranties that speak as of a particular date, which
shall be true and correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing.
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(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No material Action shall have
been commenced, against the Purchaser or the Company or any subsidiary,
or any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(e) Initial Closing Deliveries. The delivery by the Company of
the items set forth in Section 2.2(a) of this Agreement.
5.3 Conditions Precedent to the Obligation of the Purchaser to Accept
a Draw Down and Purchase the Draw Down Shares. The obligation hereunder
of the Purchaser to accept a Draw Down request and to acquire and pay for
the Draw Down Shares is subject to the satisfaction at or before each
Settlement Date, of each of the conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied at the Initial Closing, or the Purchaser shall have waived
at the Initial Closing, the conditions set forth in Section 5.2 hereof.
(b) No Suspension. Trading in the Common Stock shall not have been
suspended by the Commission or the Trading Market (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the delivery of each
Draw Down Notice), and, at any time prior to such Draw Down Notice,
trading in securities generally as reported on the Trading Market shall
not have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported on the Trading
Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(c) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to deliver
to the Purchaser such shares of stock and/or securities as the Purchaser
is entitled to receive pursuant to this Agreement.
(d) Opinion of Counsel; Officer's Bring-down Letter. The Purchaser
shall have received an opinion from the Company's counsel in the Form
of Exhibit D; provided, however, the Company shall not be required to
issue any such opinion more than once in any 30 day period; provided,
further, in lieu of such an opinion where an opinion was previously
delivered during the 30 days prior to a Settlement Date, the Purchaser
shall have received a "bring-down" letter signed by a duly authorized
officer of the Company confirming that there are no changes from the
representations and warranties contained herein made by the Company as
at Closing, or else specifying with particularity the reason for any
change.
(e) Minimum Investment Amount. The Investment Amount for the
applicable Draw Down Notice, as permitted pursuant to Section 6.1(c),
shall exceed $20,000. For purposes of clarification, if the maximum
Investment Amount as determined pursuant to Section 6.1(c) is less
than $20,000, then the Company shall be precluded from exercising a
Draw Down at such time.
(f) Equity Conditions. During the Draw Down Pricing Period through
the Settlement Date, all of the Equity Conditions have been met.
(g) Prospectus Supplement. On the Trading Day that the Company
delivers a Draw Down Notice, the Company shall have filed with the
Commission a prospectus supplement pursuant to Rule 424 under the
Securities Act setting forth the terms of the Draw Down.
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(h) Involuntary Suspension During Draw Down Pricing Period.
If during any Trading Day during the Draw Down Pricing Period
trading of the Common Stock on the Trading Market is suspended for
more than 3 hours, in the aggregate, or if any Trading Day during
the Draw Down Pricing Period is shortened because of a public
holiday.
(i) Voluntary Suspension During Draw Down Pricing Period.
If during any Trading Day during the Draw Down Pricing Period sales
of Draw Down Shares pursuant to the Registration Statement are
suspended by the Company for more than three (3) hours, in the aggregate.
(j) Directors and Officers Insurance. The Company shall have
obtained directors and officers insurance from a reputable insurance
provider with liability coverage at least equal to the Commitment
Amount.
ARTICLE VI
DRAW DOWN TERMS
6.1 Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise
draw downs against the Commitment Amount (each a "Draw Down") during
the Commitment Period, which Draw Downs the Purchaser shall be
obligated to accept, subject to the terms and conditions under this
Agreement. Before the Company shall exercise a Draw Down, the Company
shall have caused a sufficient number of shares of Common Stock to be
registered to cover the Draw Down Shares to be issued in connection
ith such Draw Down (using a good faith estimate based on the recent
market price of the Common Stock), and, on the Trading Day that such
request is made, the Company shall have filed with the Commission a
prospectus supplement pursuant to Rule 424 under the Securities Act
setting forth the terms of the Draw Down.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period and the Company may not exercise a Draw Down until the applicable
Trading Cushion has elapsed since the end of the previous Draw Down
Pricing Period.
(c) The Company must inform the Purchaser by delivering a Draw
Down notice, in the form of Exhibit E attached hereto (the "Draw Down
Notice"), via facsimile transmission, in accordance with Section 8.3,
as to the dollar amount of the Draw Down (the "Investment Amount")
the Company wishes to exercise.
(d) The maximum Investment Amount as to each Draw Down shall be
equal to the lesser of (i) the average daily dollar trading volume
of the Common Stock on the Trading Market during the 20 Trading Days
immediately prior to the applicable Commencement Date and (ii) $250,000.
For purposes of clarification, such average in clause (i) shall be
determined by averaging the daily dollar trading volumes for each
Trading Day during such period, not by aggregating the volume over
such period and dividing by 20.
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(e) The number of Draw Down Shares to be issued on a Settlement
Date shall equal the Investment Amount applicable to such Settlement
Date divided by the lesser of the Purchase Price as calculated during
the applicable Draw Down Pricing Period and, if the applicable Draw
Down Shares are not delivered on or before the applicable Settlement
Date, the Purchase Price as calculated during the applicable Draw Down
Pricing Period, but assuming such Draw Down Pricing Period is extended
through the Trading Day immediately prior to the date the applicable
Draw Down Shares are actually delivered to the Purchaser.
(f) On the Trading Day immediately following the last day of the
Draw Down Pricing Period, the Company shall deliver to the Purchaser
and the Purchaser shall acknowledge to the Company a settlement
statement (the "Settlement Statement") setting forth the calculation
of the Purchase Price and the Investment Amount as to the applicable
Draw Down Pricing Period. The issuance of the Draw Down Shares as to
a Draw Down and the payment of the Investment Amount as to a Draw
Down shall occur within 1 Trading Day of the end of the applicable
Draw Down Pricing Period (the "Settlement Date").
(g) On or before the Settlement Date, the applicable Draw Down
Shares shall be delivered to the Depository Trust Company ("DTC")
account of the Purchaser, or its designees, as designated by the
Purchaser in the Settlement Statement, via DTC's Deposit Withdrawal
Agent Commission system ("DWAC"). Upon the Company electronically
delivering such Draw Down Shares to the DTC account of the Purchaser,
or its designees, via DWAC by 9:30 a.m. ET, the Purchaser shall, on
the same day (or the next Business Day if such day is not a Business
Day) wire transfer immediately available funds to the Company's bank
account, as designated by the Company in the Settlement Statement,
for the amount of the Investment Amount of such Draw Down Shares.
Upon the Company electronically delivering the applicable Draw Down
Shares to the Purchaser or its designee's DTC account via DWAC after
9:30 a.m. ET, the Purchaser shall wire transfer next day available
funds to the Company's designated account on such day (or the next
Business Day if such day is not a Business Day) for the amount of
the Investment Amount of such Draw Down Shares. In the event that
following the Initial Closing the Company elects to establish an
escrow account pursuant to a written escrow agreement for the
receipt of the Investment Amount payable in connection with Draw
Downs, provided the terms and conditions of any such escrow agreement
are reasonably acceptable to the Purchaser and the Company instructs
the Purchaser to pay an applicable Investment Amount to such escrow
agent when it delivers a Draw Down Notice, the Draw Down Shares
shall be credited by the Company to the DTC account designated by
the Purchaser via DWAC upon receipt by such escrow agent of payment
for the Draw Down Shares into such escrow agent's escrow account
and notice to the Company thereof.
(h) The Company understands that a delay in the delivery of the
Draw Down Shares into the Purchaser's DTC account beyond the
Settlement Date could result in economic loss to the Purchaser.
In addition to the Purchaser's other available remedies, the
Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Draw Down Shares
(based on the Closing Price of the Common Stock on the applicable
Settlement Date) required to be delivered on the Settlement Date,
$7.50 per Trading Day (increasing to $15 per Trading Day five
(5) Trading Days after such damages have begun to accrue) for
each Trading Day after the Settlement Date until such Draw Down
Shares are delivered pursuant to this Article VI. Nothing herein
shall limit the 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 the
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.
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ARTICLE VII
TERMINATION
7.1 Term. The term of this Agreement shall begin on the date
hereof and shall end on the earlier of (i) 24 months from the
Effective Date or as otherwise set forth in Section 7.2 and (ii)
36 months from the date hereof.
7.2 Other Termination. This Agreement shall terminate if (i)
the Common Stock is de-listed from the Trading Market unless such
de-listing is in connection with a subsequent listing on another
Trading Market, (ii) the Company files for protection from creditors
under any applicable law or (iii) the Registration Statement is not
declared effective by the Commission on the 12-month anniversary
of the date hereof.
ARTICLE VIII
MISCELLANEOUS
8.1 Fees and Expenses. The Company has paid the flat fee sum
of $10,000 to the Purchaser for its legal fees and expenses in
connection with the transactions contemplated hereunder. 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 Purchaser.
8.2 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.
8.3 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.
8.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case
of an amendment, by the Company and the 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.
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8.5 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.
8.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors. Neither
party may assign this Agreement or any rights or obligations hereunder
(other than by merger). 8.7 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 4.7.
8.8 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.
8.9 Survival. The representations and warranties contained
herein shall survive the Closing and the delivery of the Draw Down
Shares, the Shares and Warrant Shares.
8.10 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.
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8.11 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.8.12 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.
8.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages,
each of the Purchaser 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.
8.14 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.
8.15 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.
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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.
CHINA MEDIA GROUP CORPORATION
Address for Notice:
c/o Yuen Parnters
10th Floor, Chiyu Bank Building
No. 78 Des Voeux Road Central
Hong Kong
By: /s/ Con UNERKOV
------------------
Name: Con UNERKOV
Title: President
Fax No.:
e-mail: con_imerlpv@iprimus.au
Attn: Con Unerkov
With a copy to (which shall not constitute notice):
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[PURCHASER SIGNATURE PAGES TO CHMD 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:________________________________________
Fax Number of Purchaser: __________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as
above):
Commitment Amount:
Shares:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
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EXHIBIT 10.2
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December ___, 2006, among China Media Group
Corporation, a Texas corporation (the "Company"), and Tailor Made
Capital, Ltd. ("Purchaser").
This Agreement is made pursuant to the
Securities Purchase Agreement, dated as of the date hereof between
the Company and the Purchaser (the "Purchase Agreement").
The Company and 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, May 7, 2007.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Filing Date" means, with respect to the Registration Statement
required hereunder, March 7, 2007.
"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.
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"Registrable Securities" means all of (i) the Draw Down Shares issuable,
(ii) the Shares, (iii) the Warrant Shares issuable, (iv) any additional
shares issuable in connection with any anti-dilution provisions in the
Warrants (without giving effect to any limitations on exercise set forth
in the Warrant) and (v) any shares of Common Stock 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 statement required to
be filed hereunder, 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 the Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering the
resale of the Registrable Securities for an offering to be made by the
Holder(s) on a continuous basis pursuant to Rule 415; provided, however,
that if 100% of the Registrable Securities hereunder shall equal or
exceed 30% of the issued and outstanding Common Stock less any such
shares held by Affiliates of the Company on the actual filing date of
the initial Registration Statement ("Registration Cap"), the initial
Registration Statement shall register a number of shares of Common
Stock which is equal to the Registration Cap less 10,000 shares of
Common Stock, and the remaining Registrable Securities shall be
subject to Section 3(c); provided, further, that if a Registration
Statement is subject to a Registration Cap, the Shares and the Warrant
Shares along with any shares of Common Stock issuable to the Holder
pursuant to that certain 10% Convertible Debenture issued pursuant to
that certain Debenture Purchase Agreement, dated December __, 2006,
by and between the Company and the Holder, shall have priority in such
Registration Statement over the Draw Down Shares if such shares are
not then registered. 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 substantially the "Plan of Distribution" attached hereto as
Annex A. Subject to the terms of this Agreement, the Company shall
use its commercially reasonable 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 commercially
reasonable 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), or the Commitment
Period has expired and no Registrable Securities are then outstanding
or may become outstanding on the exercise of any Warrant, 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 promptly 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. The Company
shall file a final Prospectus with the Commission as required by
Rule 424.
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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 the
Registration Statement and not less than 1 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
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 Holder, 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 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 Holder 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 Holder has been so
furnished copies of a Registration Statement or 1 Trading Day after the
Holder has been so furnished copies of any related Prospectus or
amendment or supplement thereto and provided that such failure to file
shall not constitute a default under any of the Transaction Documents
provided that the Company use commercially reasonable effort to address
such objections promptly 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 five
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 the Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (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 the
Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Holder true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement (provided that the Company may excise any information contained
therein which would constitute material non-public information as to
Holder); 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 Holder set
forth in such Registration Statement as so amended or in such Prospectus
as so supplemented.
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(c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 100% of the number of shares of Common
Stock then registered in a Registration Statement, 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 Holder of not less than 100% of the number of such
Registrable Securities.
(d) Notify the Holder 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 1 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 Holder until such
information otherwise becomes public, unless disclosure by Holder is
required by law; provided, further, notwithstanding Holder's
agreement to keep such information confidential, the Holder makes
no acknowledgement that any such information is material, non-public
information.
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(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 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 the Holder 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 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,
and (iii) pay the filing fee required in connection therewith.
(i) Prior to any resale of Registrable Securities by Holder,
use its commercially reasonable efforts to register or qualify
or cooperate with the Holder 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 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 the 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 Holder, cooperate with the Holder
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to the 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 Holder
may request.
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(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
the Registration Statement or a supplement to the related Prospectus
or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the
Company notifies the Holder 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
Holder 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.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require the Holder to furnish to the Company
a certified statement as to the number of shares of Common Stock
beneficially owned by the Holder and, if required by the Commission,
the natural persons thereof that have voting and dispositive control
over the Shares. The Holder acknowledges that it will be named as an
"underwriter" of the Registrable Securities in the Prospectus, as
required by Commission policies.
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 the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation,
(i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with
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
Holder or, except to the extent provided for in the Transaction
Documents, any legal fees or other costs of the Holder.
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5 Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and
hold harmless 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 Holder, each Person who controls
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, 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 Holder
furnished in writing to the Company by Holder expressly for use
therein, or to the extent that such information relates to Holder or
Holder's proposed method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by 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 Holder of an outdated or
defective Prospectus after the Company has notified Holder in writing
that the Prospectus is outdated or defective and prior to the receipt
by Holder of the Advice contemplated in Section 6(d). The Company
shall notify the Holder 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 Holder. 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) 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 Holder to the Company
specifically for inclusion in such Registration Statement or
such Prospectus or (ii) to the extent that such information relates to
Holder's proposed method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by 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 (iii)
in the case of an occurrence of an event of the type specified in
Section 3(d)(iii)-(vi), the use by Holder of an outdated or defective
Prospectus after the Company has notified Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by
Holder of the Advice contemplated in Section 6(d). In no event shall
the liability of Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
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(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.
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(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), Holder shall not be required to contribute, in the
aggregate, any amount in excess of the amount by which the net proceeds
actually received by Holder from the sale of the Registrable Securities
subject to the Proceeding exceeds the amount of any damages that Holder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of
fraud by Holder.
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 the
Holder, of any of their respective obligations under this Agreement,
Holder or the Company, as the case may be, in addition to being entitled
to exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and 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. Neither the Company nor any of
its security holders (other than the Holder in such capacity pursuant
hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities and the shares of Common
Stock issuable upon conversion of that certain 10% Convertible Debenture
due on December __, 2006 and originally issued to the Holder. In
addition, from the date hereof until the end of the Commitment Period,
other than Registration Statement(s) required to be filed hereunder,
the Company shall not file any other registration statements with the
Commission seeking to register shares issuable pursuant to an equity
line of credit or similar transaction.
(c) Compliance. 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.
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(d) Discontinued Disposition. Holder agrees by its acquisition of
Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Section 3(d),
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.
(e) 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.
(f) 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.
(g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors. Neither
party may assign this Agreement or any rights or obligations hereunder
(other than by merger).
(h) Piggy Back Registration Rights. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Shares and Warrant Shares then issuable 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 include in such registration statement all of such Registrable
Securities; provided, however, that the Company shall not be required
to register any Registrable Securities pursuant to this Section 6(h)
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. For clarity, the provisions of this Section
6(h) shall require that the Company include the Shares and Warrant
Shares issuable on the first registration statement it files following
the date hereof.
(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 Holder 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.
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(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 this Agreement, and shall not be
deemed to limit or affect any of the provisions hereof.
*************************
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
CHINA MEDIA GROUP CORPORATION
By: /s/ Con UNERKOV
--------------------
Name: Con UNERKOV
Title: Director
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[SIGNATURE PAGE OF HOLDERS TO CHMD RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: _____________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
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ANNEX A
Plan of Distribution
--------------------
The 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.
The 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 Stockholder 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 Stockholder 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 Stockholder may arrange for
other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the Selling Stockholder
(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.
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In connection with the sale of the common stock or interests therein,
the Selling Stockholder 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 Stockholder may also sell shares
of the common stock short and deliver these securities to close out
its short position, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities. The Selling
Stockholder 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 Stockholder is an underwriter within the meaning of the
Securities Act 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. The 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 Stockholder against
certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because the Selling Stockholder is an "underwriter" within the
meaning of the Securities Act, it 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 Stockholder.
We agreed to keep this prospectus effective until the earlier of
(i) the date on which the shares may be resold by the Selling
Stockholder 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.
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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 Stockholder 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 Stockholder or any other person.
We will make copies of this prospectus available to the Selling
Stockholder 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.
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Annex B
CHINA MEDIA GROUP CORPORATION
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, no par value per
share (the "Common Stock"), of China Media Group Corporation, a Texas
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 on Form [S-3 (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,
dated as of December ___, 2006 (the "Registration Rights Agreement"),
among the Company and the Purchasers named therein. 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 and listed below in Item 3 (unless otherwise
specified under such Item 3) 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 Listed in
Item 3 below 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. Beneficial Ownership of Registrable Securities:
(a) Type and Number of Registrable Securities beneficially
owned (not including the Registrable Securities that are
issuable pursuant to the Purchase Agreement):
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
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4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable
Securities as compensation for investment banking services
to the Company.
Yes [ ] No [ ]
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 [ ] No [ ]
(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 [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should
be identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.
Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
-------------------------------------------------------------
-------------------------------------------------------------
6. 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:
-------------------------------------------------------------
-------------------------------------------------------------
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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 6 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:
54
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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.
COMMON STOCK PURCHASE WARRANT
T o Purchase __________ Shares of Common Stock of
CHINA MEDIA GROUP CORPORATION
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 the date hereof (the
"Initial Exercise Date") and on or prior to the close of business on
May __, 2009 (the "Termination Date") but not thereafter, to subscribe
for and purchase from China Media Group Corporation, a Texas corporation
(the "Company"), up to ______ shares (the "Warrant Shares") of Common
Stock, no par value 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
December __, 2006, among the Company and the purchasers signatory thereto.
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.
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b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $_____, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after one year from the date of
issuance of this Warrant 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:
(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, on the Termination Date,
this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
d) Holder's Restrictions. 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
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), 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) 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
56
<page>
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), 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) 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) 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.
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 after the Effective
Date, 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.
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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 2nd Trading
Day following 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 2nd Trading Day following 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)
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.
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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.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this
arrant 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.
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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
he 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.
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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) evidence 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.
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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) Notice to Holders.
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 each 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.
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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
ther 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).
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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.
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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
hares 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.
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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.
Dated: December ___, 2006
CHINA MEDIA GROUP CORPORATION
By: /s/ Con UNERKOV
-----------------
Name: Con UNERKOV
Title: President
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NOTICE OF EXERCISE
TO: CHINA MEDIA GROUP CORPORATION
(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:
___________________________________________________________________
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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.
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Exhibit 10.4
DEBENTURE PURCHASE AGREEMENT
This Debenture Purchase Agreement (this "Agreement") is dated as
of December ___, 2006 among China Media Group Corporation, a Texas
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 set
forth 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 Date" means, respectively, the date of the First Closing, the
date of the Second Closing or the date of the Third Closing.
"Closing Dates" means, collectively, the dates of the First Closing,
the Second Closing and the Third Closing.
"Closing(s)" means the closing(s) of the purchase and sale of the
Securities pursuant to Section 2.1.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, no par value 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 DLA Piper US LLP, with offices located at 203
North LaSalle Street, Suite 1900, Chicago, IL 60601.
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"Conversion Price" shall have the meaning ascribed to such term in the
Debentures.
"Debentures" means, the 10% Convertible Debentures due, subject to the
terms therein, one year 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.
"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 for such purpose 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, (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, and (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.
"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(aa).
"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).
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"Maximum Rate" shall have the meaning ascribed to such term in Section
5.17.
"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.
"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 conversion in full of all Debentures
(including Underlying Shares issuable as payment of interest),
ignoring any conversion limits set forth therein, and assuming that
the Conversion Price is at all times on and after the date of
determination 75% 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 and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated hereunder.
"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 purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement
and next to the heading "First Closing Subscription Amount",
"Second Closing Subscription Amount", and "Third Closing Subscription
Amount", in United States dollars and in immediately available funds.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
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"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
Registration Rights Agreement, all exhibits and schedules hereto
and thereto and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Transfer Agent" means _____________________, with a mailing
address of ___________________ and a facsimile number of
_______________, 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.
"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.
ARTICLE II
PURCHASE AND SALE
2.1 Closings. On each Closing Date, upon the terms and subject
o 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, severally and not jointly,
agrees to purchase, the principal amount of the Debentures set forth on
such Purchaser's signature page hereto and corresponding to the
applicable Closing. Each Purchaser shall deliver to the Company, via
wire transfer or a certified check, immediately available funds equal to
the Subscription Amount applicable to such Closing and the Company shall
deliver to each Purchaser its respective Debenture, 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
applicable Closing. Upon satisfaction of the conditions set forth in
Sections 2.2 and 2.3, each Closing shall occur at the offices of FWS or
such other location as the parties shall mutually agree as follows:
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(a) First Closing. The First Closing shall be for up to, in the
aggregate, $50,000 and shall occur on, or as soon as reasonably
practicable following, the date hereof.
(b) Second Closing. The Second Closing shall be for up to, in
the aggregate, $50,000 and shall occur on, or as soon as reasonably
practicable following, the date the Registration Statement is initially
filed with the Commission.
(c) Third Closing. The Third Closing shall be for up to, in the
aggregate, $25,000 and shall occur on, or as soon as reasonably
practicable following the Effective Date, provided that the following
conditions, in addition to the conditions set forth in Section 2.3
herein, have been satisfied:
(i) in connection with the initial Registration Statement filed
by the Company, upon receipt by the Company of notification (oral or
written, which occurs earlier) from the Commission that such
Registration Statement shall not be reviewed or shall not be subject
to further review, the Company shall have promptly delivered written
notice thereof to each Purchaser, which written notice (A) shall be
delivered to the Holders contemporaneously with the Company's filing
with the Commission of a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act and (B) shall include
the proposed date of effectiveness of the Registration Statement,
which shall not be later than 5 Trading Days following the delivery
date of such notice to the Holders (such written notice, the
"Notice to Holders"); and (ii) each Purchaser shall have delivered
such Purchaser's Subscription Amount for the Second Closing to the
escrow agent pursuant to the escrow deposit agreement within 3
Trading Days following such Purchaser's receipt of the Notice to
Holders.
2.2 Deliveries
(a) On each Closing Date (except as otherwise specified), the
Company shall deliver or cause to be delivered to each Purchaser
the following:
(i) as to the First Closing, this Agreement duly executed by the
Company;
(ii) as to the First Closing, 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 as to such Closing, registered in the name of
such Purchaser; and
(iv) as to the First Closing Only, the Registration Rights
Agreement duly executed by the Company.
(b) On each Closing Date (except as otherwise specified), each
Purchaser shall deliver or cause to be delivered to the Company
the following:
(i) as to the First Closing only, this Agreement duly executed
by such Purchaser;
(ii) such Purchaser's Subscription Amount as to the applicable
Closing by wire transfer to the account as specified in writing by
the Company; and
(iii) as to the First Closing only, the Registration Rights
Agreement duly executed by such Purchaser.
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2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with
each Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on each
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 applicable 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 applicable Closing are subject to the following
conditions being met:
(i) the accuracy in all material respects when made and on the
applicable 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 applicable Closing
Date shall have been performed; (iii) the delivery by the Company
of the items set forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) as to the Third Closing only, the Company shall have filed
with the Commission a Registration Statement registering 130% of the
Registrable Securities (as defined in the Registration Rights
Agreement) and such Registration Statement shall have been declared
effective by the Commission as to all such Registrable Securities on
or before April __, 2007 and shall have thereafter remained
effective; and
(vi) from the date hereof to the applicable 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 applicable Closing), and,
at any time prior to the applicable 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 applicable Closing.
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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.
(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. 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.
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(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.
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(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.
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(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.
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(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.
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(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 applicable 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
nformation 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.
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(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.
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(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 applicable 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
applicable 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 $125,000 (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 $125,000 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.
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(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 accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge and
belief of the Company, such accounting firm (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be
included in the Company's Annual Report on Form 10-KSB for the year
ending December 31, 2006.
(ff) Seniority. As of the applicable 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.
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(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
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 applicable 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.
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(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 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 roker-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).
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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 [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
[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.
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(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 is converted 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), $7.50 per Trading
Day (increasing to $15 per Trading Day 5 Trading Days after such
damages have begun to accrue) for each Trading Day after the 2nd
Trading Day following 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.
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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 Procedures. The form of Notice of Conversion
included in the Debentures set forth the totality of the procedures
required of the Purchasers in order to convert the Debentures. No
additional legal opinion or other information or instructions shall
be required of the Purchasers to convert their Debentures. The
Company shall honor 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,
within 4 Trading Days of 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
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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 shall not use
such proceeds 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), or 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.
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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.
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(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 [RESERVED].
4.14 Subsequent Equity Sales.
(a) From the date hereof until after the Effective Date, neither
the Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents.
(b) From the date hereof until such time as no Purchaser holds any
of the Securities, 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) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance. 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 interest 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.
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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 A
greement are first publicly announced as described in Section 4.6;
provided, however, the Purchaser agrees that they will not enter into
any Net Short Sales (as hereinafter defined) from the period commencing
on the First Closing Date and ending on the date that such Purchaser no
longer holds any Debentures. For purposes of this Section 4.16, a
"Net Short Sale" by the Purchaser shall mean a sale of Common Stock by
such Purchaser that is marked as a short sale and that is made at a time
when there is no equivalent offsetting long position in Common Stock held
by such Purchaser. For purposes of determining whether there is an
equivalent offsetting long position in Common Stock held by the
Purchaser, Underlying Shares that have not yet been converted pursuant
to the shares of Debentures shall be deemed to be held long by the
Purchaser, and the amount of shares of Common Stock held in a long
position shall be all unconverted Underlying Shares (ignoring any
conversion limitations included therein) issuable to such Purchaser
on such date, plus any shares of Common Stock otherwise then held
by such Purchaser. 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 Closings 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.
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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.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Purchaser
by written notice to the Company if the First Closing has not been
consummated on or before December ___, 2006.
5.2 Fees and Expenses.
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.
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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 Closings and the delivery of the Securities for the
applicable statue of limitations.
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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, the Purchaser shall be required to return any
shares of Common Stock delivered in connection with any such
rescinded conversion 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.
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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
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Company through FWS. 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
otwithstanding 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.
IN WITNESS WHEREOF, the parties hereto have caused this
Debenture Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first
indicated above.
CHINA MEDIA GROUP CORPORATION
c/o Yuen Parnters
10th Floor, Chiyu Bank Building
No. 78 Des Voeux Road Central
Hong Kong
By: /s/ Con UNERKOV
-------------------
Name: Con UNERKOV
Title: President
Fax No.:
e-mail: con_imerlpv@iprimus.au
Attn: Con Unerkov
With a copy to (which shall not
constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO CHMD DEBENTURE 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):
First Closing Subscription Amount: _____________
Second Closing Subscription Amount: _____________
Third Closing Subscription Amount: _____________
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Exhibit 10.5
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: December __, 2006
Original Conversion Price (subject to adjustment herein): $0.024
$_______________
10% CONVERTIBLE DEBENTURE
DUE DECEMBER ____, 2007
THIS DEBENTURE is one of a series of duly authorized and
validly issued 10% Convertible Debentures of China Media Group
Corporation, a Texas corporation, having its principal place of
business at ____________ (the "Company"), designated as its 10%
Convertible Debenture due December ___, 2007 (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
$_______________ on December ___, 2007 (the "Maturity Date") or such
earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. 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
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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.
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the
Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time)), or (b) if there is no such price on such date, then the
closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 PM (New York time)),
or (c) if the Common Stock is not then listed or quoted on the
Trading Market 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) if the shares of Common Stock are not then
publicly traded the fair market value of a share of Common Stock
as determined by an appraiser selected in good faith by the Holder.
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"Common Stock" means the common stock, no par value 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" means, 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 or quoted 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
issuable upon conversion in full of the Optional Redemption Amount,
assuming conversion in full by the Holder rather than redemption,
would not violate the limitations set forth in Section 4(c) herein,
provided for purposes of this clause (vii), the Beneficial Ownership
Limitation shall be 9.99% rather than 4.99%, and (viii) the Holder
is not in possession of any information provided by the Company that
constitutes, or may constitute, material non-public information.
"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).
"Late Fees" shall have the meaning set forth in Section 2(c).
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"Mandatory Default Amount" means the sum of (i) the greater of (A)
130% of the outstanding principal amount of this Debenture, plus all
accrued and unpaid interest hereon, or (B) the outstanding principal
amount of this Debenture, plus all accrued and unpaid interest hereon,
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.
"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(a).
"Optional Redemption Amount" means the sum of (i) 115% 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(a).
"Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth in
Section 6(a).
"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 and (b) lease obligations and purchase money
indebtedness of up to $125,000, 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
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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.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of December ___, 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.
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Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 10% per annum,
payable annually, and on each Conversion Date (as to that principal
amount then being converted), and on the Maturity Date (each such
date, an "Interest Payment Date") (if any Interest Payment Date is
not a Business Day, then the applicable payment shall be due on the
next succeeding Business Day), in cash.
b) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year, consisting of twelve 30 calendar day
periods, and shall accrue daily commencing on the Original Issue
Date until payment in full of the principal sum, together with all
accrued and unpaid interest, liquidated damages and other amounts
which may become due hereunder, has been made. Interest shall
cease to accrue with respect to any principal amount converted,
provided that the Company actually delivers the Conversion
Shares within the time period required by Section 4(d)(ii) herein.
Interest hereunder will be paid to the Person in whose name this
Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the "Debenture
Register").
c) Late Fee. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at an interest rate equal
to the lesser of 16% per annum or the maximum rate permitted by
applicable law ("Late Fees") which shall accrue daily from the
date such interest is due hereunder through and including the
date of payment in full.
d) Prepayment. 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.
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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, plus all accrued and unpaid interest thereon, has
been so converted. 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 $0.024, subject to adjustment
herein (the "Conversion Price").
c) 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) 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
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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) 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 and (B) a bank check in
the amount of accrued and unpaid interest. 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.
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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 2nd
Trading Day following the Share Delivery 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; 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 for
any 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. 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, $7.50 per
Trading Day (increasing to $15 per Trading Day on the fifth
Trading Day after such liquidated damages begin to accrue) for
each Trading Day after 2nd Trading Day following the Share
Delivery Date 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 2nd
Trading Day following 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
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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, 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. 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.
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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 the Debentures); (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
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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
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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.
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Section 6. Redemption.
a) 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
some or all of the then outstanding principal amount of this Debenture for
cash in an amount equal to the Optional Redemption Amount on the 20th
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 20 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.
b) Redemption Procedure. The payment of cash pursuant to an
Optional Redemption shall be payable on the Redemption Date. If
any portion of the payment pursuant to an Optional 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
16% 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
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 Redemption, ab initio and
the Company shall have no further right to exercise such Optional
Redemption. 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;
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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); or
g) 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) interest, 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 an interestpayment or other default under
clause (B) above, is not cured within 10
Trading Days;
ii. the Company shall fail to materially 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) 10
Trading Days after notice of such failure sent by the Holder or
by any other Holder and (B) 15 Trading Days after the Company
has become or should have become aware of such failure;
iii. a 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;
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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 $250,000, 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 ten 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 210th 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 30 consecutive Trading Days or 45 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 seventh 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; or
xii. 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 $125,000, and such
judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.
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b) Remedies Upon Event of Default. If any Event of Default
occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, 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 16% 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: Con Unerkov or the Chief Financial Officer 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.
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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.
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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.
*********************
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.
CHINA MEDIA GROUP CORPORATION
By: /s/ Con UNERKOV
--------------------
Name: Con UNERKOV
Title: President
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10%
Convertible Debenture due December ___, 2007 of China Media Group
Corporation, a Texas corporation (the "Company"), into shares of
common stock, no par value 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:
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Schedule 1
CONVERSION SCHEDULE
The 10% Convertible Debentures due on December __, 2007 in the
aggregate principal amount of $____________ are issued by China
Media Group Corporation. 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)
- --------------------
Company Attest
- --------------------
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Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of December ___, 2006, among China Media
Group Corporation, a Texas 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, May 7,
2007 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, March 7, 2007 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).
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"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)
any additional shares of Common Stock issuable in connection
with any anti-dilution provisions in the Debentures (in each
case, without giving effect to any limitations on
conversion set forth in the Debenture) and (iii) 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 130% of the Registrable Securities on such
Filing Date for an offering to be made on a continuous basis
pursuant to Rule 415. 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 commercially reasonable 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
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shall use its commercially reasonable 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 promptly 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. The Company shall file a final Prospectus with
the Commission as required by Rule 424.
(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 be deemed to have not 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 1.0% of the aggregate
purchase price paid by such Holder pursuant to the Purchase
Agreement for any Registrable Securities then held by such
Holder (calculated as if all convertible securities had been
fully converted) for any Registrable Securities then held by
such Holder for the first sixty calendar day period following
such Event Date, increasing to 1.5% of the aggregate purchase
price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder
(calculated as if all convertible securities had been fully
converted) after the first sixty calendar day period following
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the applicable Event Date. The parties agree that (1) in no
event shall the Company be liable for liquidated damages under
this Agreement in excess of 1.5% of the aggregate Subscription
Amount of the Holders in any 30-day period and (2) the maximum
aggregate liquidated damages payable to a Holder under this
Agreement shall be 24% 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 and provided that such failure to file shall not
constitute a default under any of the Transaction Documents
provided that the Company use commercially reasonable effort
to address such objections promptly. 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 five 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
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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, the number of
Registrable Securities at any time exceeds 90% of the number
of shares of Common Stock then registered in a Registration
Statement, 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 130% of the number of such
Registrable Securities.
(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
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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, that 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.
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(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,
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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
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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
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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.
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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 and except for the shares
of Common Stock issuable pursuant to that certain Securities
Purchase Agreement, dated December __, 2006, by and between
the Company and the Holder; provided, however, that the
Company acknowledges and agrees that the Registrable Securities
under this agreement have priority over the registration of
the shares issuable pursuant to such agreement), 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).
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(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.
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(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.
CHINA MEDIA GROUP CORPORATION
By:/s/ Con UNERKOV
-----------------
Name: Con UNERKOV
Title: President
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
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[SIGNATURE PAGE OF HOLDERS TO CHMD RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: ____________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
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Annex A
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") ofthe 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
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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).
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Annex B
CHINA MEDIA GROUP CORPORATION
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock (the
"Registrable Securities") of China Media Group Corporation,
a Texas corporation (the "Company"), 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):
---------------------------------------------
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2. Address for Notices to Selling Securityholder:
________________________________________________________
Telephone: __________________________________________
Fax:_________________________________________________
Contact Person: _____________________________________
3. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 3(a), did you receive your
Registrable Securities as compensation for
investment banking services to the Company.
Yes [ ] No [ ]
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 [ ] No [ ]
(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 [ ] No [ ]
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:
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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:
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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:
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